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Personal Contract Hire (PCH)

What is Personal Contract Hire (PCH)?

Personal Contract Hire (PCH, also known as personal leasing) is a long-term vehicle rental agreement. It is a solution for private individuals and is becoming an increasingly popular alternative to purchasing brand new vehicles among car users.

You pay to ‘rent’ the vehicle throughout the duration of your contract, and then return the vehicle at the end of the agreement, leaving the finance company to worry about depreciation values and disposal of the car.

How could PCH work for you?

If you choose to lease a car on a personal contract hire basis, you will make a series of monthly payments for the duration of your lease agreement (24 or 48 months, for example), having already paid an initial rental.

You pay for the use of the vehicle throughout your contract, and then return the car to the finance company at the end of the agreement without any further obligations, leaving you free to lease or purchase another vehicle.

In some cases (subject to approval from the finance provider), you may be able to extend the vehicle contract.

Watch the video below to understand more about PCH and the benefits of using Fleet Hub.

The key features of Personal Contract Hire

PCH is the most common form of private car leasing.

Fixed monthly rentals cover the rental of the vehicle, plus any maintenance options if chosen.

The monthly rentals are calculated by taking the following into consideration:

  • The cost of the vehicle
  • The contract period
  • Anticipated residual value of the vehicle (how much the vehicle is likely to be worth at the end of the contract)
  • Mileage allowance (as chosen by you before the start of your contract)
  • Any additional options, such as a maintenance contract

You never technically own the vehicle – it remains the property of the finance company. However, this means you do not need to worry about the vehicle’s depreciating value.

The key benefits of Personal Contract Hire
  • Low initial rental
  • Fixed rentals for the whole package, making budget planning easier
  • Flexible terms to meet your finance requirements and driving habits – with variable contract duration and mileage terms
  • Maintenance of vehicles can be included in the monthly fees, spreading the cost
  • Allows you to use a vehicle that might otherwise be unreachable in terms of its on-the-road (OTR) cost
  • When returning the vehicle at the end of your agreement, you do not need to worry about it depreciation or disposal
Considerations for Personal Contract Hire
  • Early termination can be expensive
  • If you have exceeded your agreed mileage, an excess mileage charge will be payable, worked out on a ‘pence per mile’ basis as set at the start of your contract
  • You must return the vehicle in a well-maintained condition. Any damage over and above that stated in the Fair Wear and Tear Guide will be subject to additional charges
  • Vehicle must be insured with full comprehensive cover
  • You will never own the vehicle as there is no option to buy it
What happens at the end of the contract?

At the end of the contract, the vehicle is returned to the leasing provider, meaning you are free to hire or purchase another vehicle without any outstanding financial obligation.

If you have exceeded your agreed mileage, an excess mileage charge will be payable, worked out on a ‘pence per mile’ basis as set at the start of your contract.

When returning your vehicle, it will also be assessed according to the BVRLA Fair Wear and Tear guidelines. Any damage that falls outside of these guidelines may be subject to end-of-lease penalty charges.

Personal Contract Purchase (PCP)

What is Personal Contract Purchase (PCP)?

Personal contract purchase (PCP) is a vehicle finance agreement available to individuals (i.e. not businesses). After an a initial deposit and a series of monthly payments which effectively cover the vehicle’s depreciation, this type of lease gives you the option to purchase the vehicle or return it to the finance company at the end of the agreement.

With PCP, the monthly finance payments are not subject to VAT, although if an optional service package is taken, VAT is payable on the service costs.

How could PCP work for you?

If you lease a car on a PCP basis, you will be required to pay an initial deposit, followed by a series of monthly payments for the duration of your agreement – 24 or 48 months, for example. These monthly payments effectively cover the vehicle’s depreciation. As such, when your agreement comes to an end, there is still an outstanding amount of money due to be paid – known as the balloon payment. You can either choose to pay this amount and own the vehicle, or not pay it and return the vehicle to the lease company.

At the start of your contract, an agreement will be made as to what the car will be worth at the end of the contract – the minimum guaranteed future value (or MGFV) – otherwise known as the balloon. The monthly payments are the cost of the vehicle after the MGFV and the value of your deposit have been deducted.

Watch the video below to understand more about PCP and the benefits of using Fleet Hub.

The key features of Personal Contract Purchase

A minimum guaranteed future value (MGFV) – or balloon payment – is agreed at the start of the contract.

Fixed monthly payments cover the rental of the vehicle, plus any maintenance options if chosen, throughout the duration of the contract.

The monthly payments are calculated by taking the following into consideration:

  • The cost of the vehicle
  • The contract period
  • Agreed residual value to be paid at the end of the agreement
  • Mileage allowance (as chosen by you before the start of your contract)
  • Any additional options, such as a maintenance package
  • At the end of agreement, when all payments have been made, ownership passes to the customer – if you choose to not return the car
  • Vehicle tax is provided for the first 12 months of the contract
The key benefits of Personal Contract Purchase
  • Low initial rental
  • Fixed rentals for the whole package, making budget planning easier
  • Flexible terms to meet your personal finance requirements and driving habits – with variable contract duration and mileage terms
  • Maintenance of vehicles can be included in the monthly fees, spreading the cost
  • The finance company guarantees the resale value of the vehicle at the end of the agreement for a known and fixed amount – no risk of negative equity
  • Ownership passes to you at the end of the agreement, if you choose it to, once all payments have been made
  • Allows you to drive the car of your choice without the risk – if you’re happy with the vehicle at the end of your contract, you can choose to keep it. If not, or there’s another car you’d like to try for a few years instead, you can simply hand the vehicle back
What happens at the end of the contract?

At the end of the contract, you have three options:

  • Hand the vehicle back to the leasing company (and therefore do not pay the balloon payment)
  • Pay the balloon payment outright and own the vehicle
  • Refinance the final rental amount if applicable, subject to credit – that means pay the balloon payment in monthly installments. At the end of these payments, you own the vehicle

You do not need to decide which option is best for you until towards the end of your leasing contract.

If you have any further questions about any aspect of Personal Vehicle Leasing, please see our FAQs page or call our friendly team on 01273 772676