Personal Contract Hire (PCH)
Personal contract hire is one of the newer forms of car finance now available for individuals. The guide below looks at how personal contract hire works and the main areas to look at when considering the use of PCH for new car finance.
In many instances personal contract hire is known as car leasing, which is simply a more generic term for the same thing. Car leasing is a term that is applicable to all types of contract hire, whilst the more specific Personal Contract Hire refers to car leasing specifically for individuals. As well as this personal contract hire guide other types of car finance are reviewed in the Buyers Guide section. The different articles within the Buyers Guide combine to deliver a clear and easily understandable review of the current new car finance options available, following the same structure as this particular personal contract hire (PCH) guide to aid clarity.
How Does Personal Contract Hire Work?
A personal contract hire agreement provides control of a new car to an individual for a defined period of time, after which the car is returned to the leasing company. This means that the car never actually belongs to the person driving it. At the end of the personal contract hire agreement the driver is free to walk away or take out a new PCH agreement on a brand new car if they wish.
The creation of a personal contract hire agreement involves a number of factors, each of which will have an impact on the repayment the individual will make for each month that the PCH agreement is in place. The first thing to determine is the term of the lease, that is the duration of the personal contract hire agreement. The most common period is 3 years though this can be amended to suit the needs of the individual. Having agreed the term of the lease the next step is to estimate the mileage limit for the period. It is important to be reasonably accurate with this since all personal contract hire agreements will stipulate an excess mileage charge for anything over the agreed maximum.
With these two key points addressed the personal contract hire company can then determine what is often called the residual value or guaranteed minimum future value. This is basically what the car should be worth at the end of the PCH term, bearing in mind the length of the agreement and the mileage covered.
Putting it simply the personal contract hire company then subtracts the residual value from the actual cost of the car to arrive at the monthly payment needed. In reality there is always an initial deposit to be paid (often three times the monthly PCH payment) and interest so that the leasing company can afford to stay in business. The individual can also select additional options within the personal contract hire agreement, the most common being ongoing maintenance.
Personal Contract Hire PCH) – Advantages and Disadvantages
For peace of mind the personal contract hire route is hard to beat, especially when the maintenance is included within the PCH agreement. Driving away a brand new car safe in the knowledge that the costs are fixed, maintenance is taken care of and there is no stress of trying to sell the car later makes personal contract hire an attractive option for many.
Since the car is being returned at the end of the lease term to be sold the actual amount being financed monthly is not the full cost of the car, meaning that repayments are less than traditional car finance options.
For some people the fact that the car never belongs to them is a negative factor. Cars have historically been bought and owned so it can be a difficult to deal with concept to pay for something but not have anything at the end of it. It is therefore sensible for each individual to bear this in mind when considering personal contract hire for a new car. It should also be remembered that the car cannot be modified since it must be returned to the contract hire company with the same fitments it left with. With personal contract hire (PCH) there is not even an option to buy the car at the end of the term, unlike the personal contract purchase method of new car finance. If there is the possibility of wanting to buy the car at the end of the contract then this may be a route worth considering.
Personal contract hire (PCH) can be a great way to drive a new car every few years at a good price, whilst removing the headaches that can occur with new car ownership.
For up to date prices on new cars currently available, with instant personal contract hire price comparisons, visit the new cars page. Typical PCH repayment amounts are shown within the search results, making it a doddle to compare different new car models and determine affordability.