Personal Contract Hire (PCH)
Personal Contract Hire (PCH) is a form of car leasing for personal users – if you are looking for business car leasing
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With PCH you pay a monthly car lease fee to obtain a new car for a period of typically between two to four years. Legal ownership is retained by the finance company that delivers your contract car to your door. With personal contract hire, at the end of the term, you can have it replaced by another new contract car for a set monthly payment. Occasionally, the company will agree to sell you the car in return for a single lump payment if you wish to keep it.
Personal Contract Hire is similar to Personal Contract Purchase but you do not have the certain option of purchasing and retaining the car for a predictable price at the end of the contract.
Advantages of Personal Contract Hire
Depending on your priorities, paying monthly to ‘lease’ a car with personal contract hire could be more attractive than buying or using hire purchase because:
- With personal contract hire you can drive a new and often prestigious vehicle with a small upfront payment (typically 3 months) and significantly less each month (as much as 60%) than you would need to spend on a loan or ‘hire purchase’ (you get a ‘bigger bang for your buck’);
- With PCH you are also exposed to less financial risk, as the lease contract you sign is for the monthly payment across a lease contract term of 2, 3 or 4 years – not the cost of the entire car;
- There is a smaller initial deposit payment required than for Hire Purchase or loan, normally equivalent to three months payments (followed by 35 more for a three year contract);
- With personal contract hire you don’t need to arrange or negotiate to sell your old car when you want a new car;
- You can select the exact trim and colour online as for any new car purchase and unlike buying a used car from a dealership;
- With PCH depreciation does not affect your investment in a car but rather the investment by the finance company from whom you are leasing;
- Personal Contract Hire is also cheaper than ownership over the long term if you intend to drive new cars and replace them every few years;
- You have the option of having all maintenance and services included in the monthly price;
- The road fund licence will always be included for the first year of the lease contract and often for the life of the contract, and they will send you the tax disc for the windscreen each year;
- It may be possible to reduce the Benefit In Kind (BIK) tax implications of a company car through paying for a contract hire through a car allowance.
Disadvantages of Personal Contract Hire
- The car is owned by the finance company and not you so you may feel a lack of ‘ownership’ if that is important to you;
- You will be limited to the annual mileage you choose upfront, over and above which you must consider excess mileage fees because it lowers the sale value of your car;
- If you wish to cancel your contract and return the car then there is likely to be a penalty fee that will vary depending on your agreement;
- You should not modify the car without permission and you may not find it makes sense to pay for car-specific add-ons;
- Compared with Personal Contract Purchase, you are not guaranteed the right to retain the car at the end of the contract for a price agreed in the original contract.