Once the reserve of businesses, personal contract hire (or leasing to give it its more informal name) is now one of the fastest growing forms of new car finance available to motorists.
But is it right for you? We’ve collected the main advantages and disadvantages of personal contract hire to better illustrate what’s offered and whether leasing is right for you.
What is PCH and how does it work?
Personal Contract Hire is like renting a vehicle over a long term and prioritises usership over ownership.
The process is similar to a PCP as you decide how long you want your contract to be on the make/model, how many miles you intend to do annually, and how much you want to make as an initial payment (usually equivalent to three or six months upfront).
This information is then used to decide how much the vehicle will depreciate/lose value over the term of your contract to set the monthly payments you make on the vehicle.
Where leasing differs from Personal Contract Purchase or Hire Purchase is that, at the end of your contract, you simply hand the car back with no further commitments or payments to be made and no option to make a final payment to own the vehicle.
Advantages of Personal Contract Hire
The biggest advantage of Personal Contract Hire is that it gives you access to a new car for a lower amount than any other form of car finance, with no commitments outside of making the monthly payments for the term of your contract. With VED rolled into the monthly cost, manufacturer warranties lasting anywhere between three and seven years, and no MOT needed on new cars for up to three years from its registration, it’s essentially hassle-free motoring. Even better, if you opt for a maintenance and servicing package as part of the terms of your contract it leaves you with no major outlays on the car outside of fuel and insurance.
Driving the newest cars also means you have access to the latest tech and safety features too, with smartphone linking such as Apple CarPlay, Autonomous Emergency Braking and Lane Keep Assist becoming must have features for motorists in recent times.
The terms of the contract are flexible to your needs too: you decide how long you want the contract to last for (anywhere from 12-60 months) and you choose how much you want to pay upfront for your initial payment (the standard tends to be three months but (zero deposit options are available). This ties into the monthly payment costs too, as the higher the initial payment the lower your monthly payments will be.
When you’ve had access to the car for the agreed amount of time (anywhere between 12-60 months) you simply hand the car back to the finance company you’ve leased through. Once the car has been checked by an assessor, you will either have completed the terms of the contract or be given an additional bill for fair wear and tear as defined by the British Vehicle Rental and Leasing Association (this could be anything from scuffed alloys to upholstery stains).
Disadvantages of Personal Contract Hire
With rental being the most apt comparison to leasing, some of the disadvantages of rental carry over too, with the main one being the lack of eventual ownership of the vehicle at the end of the term. As ownership isn’t an option, this is partly why the payments are lower than other forms of car finance as you’re only paying off the depreciation rather than paying towards the purchase.
On top of that, leasing is one of the most restrictive forms of new car finance: you are required to complete the terms of the contract, meaning you can’t go over your agreed mileage without having to pay additional costs, and you can’t swap it for something else if you don’t like it nor cancel the contract. You also can’t make any modifications to the car and so will need permission from the finance company to fit any add-ons like a towbar.
To ensure you can meet the full terms, you will therefore be subjected to a credit check. If you’re not entirely certain that you can pass a credit check, Hippo offer a free ‘apply now’ feature. This doesn’t have any impact on your credit score and you’ll be pre-approved by one of our lenders within 60 minutes.
So in brief, the advantages of Personal Contract Hire are:
- Often the cheapest way to access the newest, safest cars
- Delivery, breakdown, warranty, and road tax are all included in the price
- Payment plans can be flexible to your needs with you choosing how much you want to pay upfront and per month
- No unexpected expenses caused by breakdowns or MOT
- No big payment at the end of contract
The disadvantages of Personal Contract Hire are:
- You can’t end your contract early even if your circumstances change
- Credit check required
- If you want to own the car, this isn’t an option
- Financial penalties for exceeding mileage limit and excessive wear and tear
Is car leasing right for me?
Hopefully the above has given you a fair and balanced view of car leasing, including what the advantages and disadvantages of Personal Contract Hire are, so you can make your own decision.