PCH – Personal Contract Hire
Leasing a car is in effect a long-term rental agreement. You pay a fixed monthly fee to use the car for an agreed time period and set an agreed annual mileage.
Unlike a PCP agreement in a PCH you never own the vehicle and will have to hand it back at the end of the term.
As mentioned in a PCP agreement at the end of the term you have the option to buy the vehicle in exchange for a pre-arranged balloon payment.
With PCP you also need to pay a deposit and with PCH you usually have to pay three months’ rental in advance. You can pay more if you want to reduce the monthly payment.
Things you need to know when renting a vehicle
Below are some of the restrictions you need to bear in mind when taking out a PCH hire agreement:
- Cancelling the agreement early will probably result in you having to pay a fee or potentially having to pay the balance of the outstanding rental payments
- Modifications are strictly prohibited on the vehicle. Exceptions can be made for items such as tow bars but you must seek the leasing company’s permission before making any modifications
- As in a PCP if you exceed the agreed mileage allowance you will be charged for every additional mile
- The ‘good repair’ upon the vehicle return is very important, as any damage to the vehicle will be charged back to the individual.
- If you plan on taking your car abroad, you will need to get written permission from the finance company each time you do so and there might also be a charge.
It’s important to compare APR rates, but make sure you look at the total repayment amount as well as balloon payments are not included in the APR rates.
PCH or PCP
If you decide leasing a car is your best option, here are the main points to consider when choosing between personal contract hire and personal contract purchase.
- Non-fuel running costs - With a PCH your monthly payment can sometimes include a maintenance package to cover non-fuel running costs, such as annual car tax and routine servicing.
- With PCP an optional maintenance package is sometimes available
- Monthly payments - These are generally lower for PCH than for PCP, although you often have to pay for the first three months in advance as way of a deposit
- The monthly payments for PCH also tend to be lower than for a personal car loan.
- Freedom to change supplier at the end of the contract – A PCH agreement enables you to choose a new car with the same company or a new provider
- With a PCP you will most likely have to stay with the same dealer in order to use any remaining equity in your car as a deposit for a new car.
- Worries about the car’s future - With a PCH the usual concerns of depreciation, warranty expiration or selling it on don’t exist.
- The same does apply to a PCP unless you’re planning to buy the car at the end of the contract
The big difference between PCP and PCH
The big difference between PCP and PCH is PCP gives you the opportunity to buy the car and become its legal owner at the end of the leasing contract.
With PCP the total amount you repay in monthly instalments is based on an estimate of how much the car will lose in value though depreciation between the start and end of the contract.
If at the end of the contract you don’t want to buy the car, you simply hand it back. As long as the car is in good condition and hasn’t exceeded the agreed mileage, you won’t have to pay any more money.
With both PCH and PCP the lender can repossess the car without a court order. But for PCP, once you have paid at least a third of the total amount payable, they can’t repossess it without a court order.
Information from the Finance and leasing Association has shown that four out of five people with PCP plans don’t opt to buy the car at the end of their contract. If you are one of these people then a PCH may be the best option for you. With a PCP the balloon payment means you can run a more expensive car whilst still having affordable monthly payments.