Overview

Personal contract hire (PCH) is fundamentally equal to ordinary contract hire but it is only available to private individuals. This represents the most common form of leasing and is what most people refer to as ‘car leasing.’ With a PCH agreement the customer takes control of a vehicle for a set period of time, but never actually owns the vehicle outright. Instead, once the fixed monthly payment plan has been completed and the contract comes to an end, the customer simply returns the vehicle to the leasing company. Alternatively, you can also take out a fresh personal contract hire lease.

With this type of agreement, the customer does not need to concern themselves with the re-sale value of the vehicle; it is simply returned to the leasing company. Your monthly payments are determined by the difference between the value of the car and the residual value of the car. The latter value takes into account depreciation and a strict mileage limit; going over this limit can result in penalties and charges at the end of the contract.

The Pros & Cons of Personal Contract Hire

Pros

  • Fixed prices with no interest charges – on both new and used cars.
  • Monthly rentals are generally lower than those of a personal loan.
  • Road fund licence should be included in the contract.
  • Most PCH agreements allow an optional maintenance package to be added.
  • No need to worry about depreciation or selling the car when contract is complete.
  • Access to high-spec cars that may previously seem unaffordable.

Cons

  • You will never own the vehicle.
  • As the car is not owned by you, third party car insurance is not an option.
  • No option to purchase the vehicle at any point during the agreement.

Is Personal Contract Hire right for me?

If you are a business owner, this is probably not the most ideal option for you. Regular contract hire has VAT benefits and other advantages that are not applicable to PCH. On the other hand, private individuals may find personal contract hire perfect; depending on their circumstances.

If you do a lot of travelling the residual value of your car will plummet and therefore increase your monthly instalments. Nevertheless, PCH provides fixed monthly payments and the option to take away a new car every couple of years. As long as you do not mind sacrificing ownership of a vehicle, personal contract hire could be ideal solution for you.