The definition of PCH is essentially the leasing of a vehicle for private use over an agreed period of time. It is very much the same as regular contract hire, in which you are required to make fixed monthly payments over the contractual period. Though the car is in your possession you do not actually own it. For many, personal contract hire is a cost-effective and easy means of financing a new car. Read on to find out more about what it involves and what the benefits of PCH are.
What is Included in a PCH deal?
PCH deals will vary according to the finance provider you use to lease a vehicle, but most contracts include the following:
- Fixed monthly payments.
- Road tax.
- The option to include service and maintenance costs as part of your monthly payments.
- An agreed mileage allowance.
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What does PCH involve?
The Leasing Process
Personal contract hire applies exclusively to motorists wanting to lease a car for private use. With this type of financing deal, you agree to drive the car of your choice for a set period of time. Following an initial deposit, you are contracted to make monthly payments to the leasing company over the agreed ‘leasing period’.
When this contract expires, you need to return the vehicle to the leasing company. You can then choose to walk away, or take out a new personal contract hire lease on another car. In some cases, you may be able to extend your PCH contract. Alternatively you may be offered the option to buy the vehicle once your contract comes to an end. Generally though, PCH is not designed as a purchase agreement.
Fair Wear and Tear Guidelines
PCH deals are subject to the BVRLA Fair Wear and Tear Guidelines. This means that when you return your hired vehicle at the end of the leasing period, it will be inspected for any damage that falls outside of the ‘wear and tear’ limit.
Although the rules differ depending on the type of vehicle you hire, generally ‘fair wear and tear’ refers to any damage caused by the normal use of the vehicle throughout the agreed contractual period. If you damage your vehicle as a result of an accident, poor treatment or negligent behaviour, you will likely be liable to pay lease-end penalty charges.
Common types of damage that are subject to charges include:
Chips or dents on the bodywork
Damage to the trims or wheels
Paintwork damage caused by scuffs, scratches or scrapes
Damage to the vehicle’s seats, such as rips, holes or burns
How are PCH Payments Calculated?
The main factors that determine the cost of your PCH payments are the agreed contractual period, a strict mileage limit and the ‘residual value’ of your chosen vehicle. The latter refers to the expected cost of your vehicle at the end of the leasing period, which takes into account its depreciation. Your leasing company will deduct this future value from the retail price of the car to determine the cost of your fixed monthly payments. Therefore you will be paying the difference.
The Pros and Cons of PCH
Personal contract hire deals are considered to have a number of benefits for motorists looking for an easy to manage method of financing a new car. However there are considerations for PCH that should be taken into account.
The benefits of PCH include:
- Fixed monthly payments for the entire contract – typically lower than those for a personal loan.
- Flexibility of meeting your specific financial requirements and driving habits.
- You can include the maintenance cost of your vehicle within your monthly payments.
- Access to upmarket vehicles – you can drive a car that may have been off limits in terms of its on-the-road cost (OTR).
- You do not need to worry about the depreciation of your vehicle.
- You can simply walk away from the car and the PCH deal when your contract ends.
- The initial deposit is relatively low and can be spread out over a couple of months.
Things to consider before taking out PCH:
- It can be expensive to terminate your contract early.
- Penalties apply if you exceed the agreed mileage limit.
- Penalties apply if you cause damage that does not fall under the Fair Wear and Tear Guidelines.
- Most PCH deals do not include insurance cover, so it’s your responsibility to apply for insurance separately – just as you would for any vehicle you purchase.
- You need to apply for fully comprehensive insurance cover.
- You may find it tricky finding an insurer who can provide cover to drivers who are not the legal owner of their vehicle
- You will never own the vehicle.