A GUIDE TO PERSONAL CONTRACT HIRE
What is personal contract hire?
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.
At the start of the agreement you pay a deposit – normally the equivalent of six, nine, or 12 monthly installments – followed by a set payment each month.
The most common contracts are for 12, 24, 36 and 48 months, although others do exist.
As a general rule: the longer the agreement, the lower the monthly payments.
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 PCH
- 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
- When returning the vehicle at the end of your agreement, you do not need to worry about it depreciation or disposal
Considerations for PCH
- 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.
Can I cancel a PCH agreement before the rental period ends?
Early termination of a contract is usually at the discretion of the finance provider.
Some impose a fee of 50% of any outstanding rental period.
Others calculate a fee on an individual basis, taking into account the length of the contract, mileage allowance, and any outstanding rentals.
The finance provider’s cancellation policy should be set out in your contract, so do read it carefully before you sign up.
Is there anything else to know?
A PCH agreement is a form of finance, so it’s worth knowing that you’ll be credit checked before an agreement is allowed.
Another important thing to know is that PCH deals won’t include car insurance.
How do I get the best deal?
You should look at your own financial circumstances and work out how much you can afford to pay each month.
As well as the monthly fixed payments, remember to factor in any mileage penalties and other costs to ensure you’re getting the right deal for you.