What is Personal Contract Hire (PCH)?

Car finance is incredibly common, and if you’re thinking about using it to get into a new car then you need to know about all of your options. One that you might be thinking about is Personal Contract Hire, or PCH. It’s also known as leasing, and if you boil it down further it’s basically a long-term rental.

In this article we’ll look closer at PCH by explaining what it is in detail, seeing who it works best for and discussing the advantages and disadvantages of this type of car finance. Make sure to read on to find out everything you need to know before you commit to any kind of finance agreement.

What is Personal Contract Hire (PCH)?

It sounds complicated and confusing, but PCH is simply leasing, which is the same as renting. It’s functionally the same as when you hire a car on holiday, just for a longer period and with some extra considerations that you need to take care of (for example, you must sort out your own insurance).

You pay for the right to drive the car monthly, but you never own it and there’s no option to buy it at the end of the agreement. This is as opposed to Personal Contract Purchase (PCP), in which your payments build equity in the car and you can choose to buy it at the end if you want. With PCH, you hand back the car and you’re free to either choose another deal or walk away.

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How does Personal Contract Hire (PCH) work?

Once you’ve chosen the car you want and decided on PCH as your payment method, you’ll put down an initial payment. Sometimes this is equal to the monthly payment, but in most cases it’ll be a larger amount, such as six months’ worth of payments. It all depends on the deal you choose – some might have a larger upfront cost and lower monthly payments, while others might have a longer term and lower payments. Usually the deals last for between two and four years.

There’s also often a mileage limit, and you’ll pay more to be able to drive further each year. This is because the car’s value reduces with mileage, and the company you are hiring from will want to recoup that cost when the car is returned to it.

In most cases you won’t have to worry about taxing your car, because this is all included in the price. However, insurance isn’t always included so you’ll probably have to sort that out for yourself separately each year. 

Once the term is up, you simply stop paying and hand the car back. You’re then free to find another deal, choose another finance method or anything else – it’s up to you.

Advantages and disadvantages of Personal Contract Hire (PCH)

Car finance isn’t right for everyone, and not all types of car finance are ideal for each person. That’s why there are different types, after all. There are benefits and drawbacks of each, and we’ll look at the pros and cons of PCH below.

Advantages of Personal Contract Hire (PCH)

• It’s usually the most affordable form of finance, with lower monthly payments than other methods
• Some deals have very low entry costs with very small deposits
• Simplifies monthly outgoings on your car
• Maintenance and tax costs often included in the price
• Many options for length of term and mileage limits

Disadvantages of Personal Contract Hire (PCH)

• You don’t build equity in the car, so the money you spend is gone – unlike schemes that let you own the car via finance such as PCP
• The car is never yours, even if you like it and want to keep it
• Strict rules on servicing requirements and mileage limits to keep track of
• Not always cheaper than PCP, so you need to do your research on total costs

Hire Purchase vs Personal Contract Hire

Hire Purchase (HP) uses the word ‘hire’ in the name, but it’s not quite the same as PCH. With HP you are actually buying the car, so it’s not a rental agreement but a way to pay for the car over a long period of time. The cost of the car is split into monthly payments that add up to the price you’ll pay for the vehicle.

It’s a way to buy a car without having the money to pay for it up front. Of course, you’re charged interest as part of the price, so it’s more expensive than buying with cash, but that’s the case with any finance agreement. So if you want to pay monthly for a car such as with leasing (PCH), but also want to own the car, then HP could be an option for you. Read more about it in our detailed guide here. 

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