Personal car leasing is an agreement for a period of time, typically 12-60 months, whereby you make pre-agreed monthly payments. Usually they require a deposit although, there are now many new and used vehicle deals available that don’t require a deposit.
To provide an insight into personal car lease types, we have compiled information on the different finance and lease options available and their benefits.
The four main types of leasing and finance options are explained below.
Personal Contract Purchase (PCP)
A PCP agreement is rather simple and tends to be the most appealing option. You choose a car, pay the deposit if you have one, agree on a monthly payment and drive away.
The monthly payments with a PCP plan do not contribute to the cost of the vehicle, rather they cover the depreciation of the vehicle over the lease length. This simply means you will be repaying the difference between what the car is worth at the start of the lease and what the dealer thinks it will be worth at the end of the lease (the Guaranteed Minimum Future Value).
Once the monthly payments have been completed, your options will be to:
Return the car – there will be no extra charges if the vehicle is returned within the agreed mileage and wear and tear guidelines
Buy the car – you will have to make a final payment known as a balloon payment (future value figure) then the car is legally yours
Part exchange for a new car
Benefits of PCP:
If your car is worth more than the Guaranteed Minimum Future Value, the difference can go towards a deposit on a new car
Monthly payments are usually lower than if the car is financed by Hire Purchase agreement
Hassle free - you can return the car without worrying about selling it on
Personal Contract Hire (PCH)
PCH is a type of lease where fixed monthly payments are made for an agreed period of time. The deposit is usually more substantial compared to a PCP agreement.
When the contract ends, you simply return the car. You will not be the registered keeper of the car.
Mileage and wear and tear guidelines will be stated in the contract. Excess mileage and damage to the vehicle will result in additional charges.
Benefits of PCH:
You will have access to cars you may not have been able to afford to buy outright
No worries about depreciation and reselling
Hire Purchase (HP)
With Hire Purchase, or HP, any initial deposit you decide to pay and monthly payments will go towards paying off the entire cost of the car. Once the monthly payments have been completed, the Hire Purchase agreement ends and the car is yours.
Benefits of HP:
No additional charges for mileage or damage
Own a car you may not have been able to afford to buy outright
You can save money by paying off your unpaid instalments early
Lease Purchase (LP)
A Lease Purchase agreement is like a PCP agreement but you will own the car at the end of the lease purchase, once the balloon payment has been made. The monthly payments cover the difference between the value of the car at the start and end of the agreement. The difference between LP and PCP is that the balloon payment is compulsory.
Options when the LP ends:
Own the vehicle – the balloon payment is paid and the car is yours
Part exchange - pay off the balloon payment then lease a newer car
Benefits of LP:
Lower monthly payments than if you opted for HP
You can settle your agreement early by paying off outstanding payments
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