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.
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.
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 these charges include:
PCH deals will vary according to the finance provider you use to lease a vehicle, but most contracts include the following:
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.
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:
Things to consider before taking out PCH:
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. However, you may find it tricky finding an insurer who can provide cover to drivers who are not the legal owner of their vehicle. Choosing a specialist provider is a good option if you require fully comprehensive cover that is tailored to meet your specific requirements and PCH leasing deal.
Keith Michaels is a leading provider of car insurance to individuals leasing a car under PCH for business purposes. Find out more about our PCH insurance policies and how we can help you on our Leased Car Insurance page.