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Hippo Leasing > What Is Personal Car Leasing?

What is personal car leasing?

Personal car leasing is an agreement you make for a set period, usually 12-60 months, where you pay fixed monthly payments in return for a car. Personal car leasing deals typically require a deposit, although there are now many new and used vehicle deals available that don’t

There are four main types of personal lease; personal contract purchase (PCP), personal contract hire (PCH), hire purchase (HP) and lease purchase (LP).

To provide an insight into personal car lease types, we have compiled information on the different finance and lease options available and their benefits.

1 Personal Contract Purchase (PCP)

A personal contract purchase agreement is 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. A PCP’s monthly payments don’t contribute to the cost of the vehicle. Instead, they cover the depreciation over the term of your lease.  Simply, you repay the difference between what the car is worth at the start of the lease and what the dealer thinks it’ll be worth at the end (the guaranteed minimum future value). The calculation is made using the car’s value when you buy it, how much deposit you’d like to pay, how long your agreement is and how many miles you’re expecting to drive each year. 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 pay a final payment - a balloon payment (future value figure) - then the car is legally yours
  • Part exchange your car for a new one
Benefits of PCP
  • If your car is worth more than the guaranteed minimum future value (GMFV), 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 
  • At the end of your term, you can return the car without worrying about selling it on
What should you consider?
  • If you return your car and have exceeded your contracted mileage, you’ll be charged a pre-agreed pence-per-mile for each mile you’re over
  • If you want to part exchange your vehicle and it’s worth less than the GMFV, the deficit will be added to your new finance agreement

2 Personal Contract Hire (PCH)

Similarly to PCP, a personal contract hire agreement is a type of lease where you make fixed monthly payments for an agreed period. However, when your PCH contract ends, you simply return the car. You’ll not be the registered keeper of the vehicle at any point and don’t have the option to buy it at the end.
Benefits of PCH
  • You’ll have access to cars you may not be able to afford to buy outright
  • You don’t have to worry about depreciation and reselling
  • There’s nothing to pay at the end if you haven’t exceeded your agreed mileage and there’s no damage to the car
  • You can add maintenance packages to your agreement, removing any worry of servicing, MOTs and tyre life
What should you consider?
  • You’ll never own the car outright
  • If you exceed your contracted mileage or your vehicle is damaged beyond wear and tear, you’ll face additional charges
  • You usually have to pay a bigger deposit than a PCP agreement

3 Hire Purchase (HP)

With a hire purchase agreement, any initial deposit you make will go towards paying off the entire cost of the car and lower your monthly payments. Similarly to PCH and PCP, you agree regular monthly payments for a fixed term in line with the value of your car. However, once your terms ends, you own the car outright.
Benefits of HP
  • Own a car you may not have been able to afford to buy outright
  • No additional charges for mileage or damage 
  • You can save money by paying off your unpaid instalments early
What should you consider?
  • Your monthly payments may be higher than if you enter a PCP or PCH agreement
  • Your term may be longer than through a PCP or PCH agreement

4 Lease Purchase (LP)

A lease purchase is like a PCP, but once you’ve paid the final balloon payment, you’ll own the car outright. Again, you’ll have regular monthly payments to make, which cover the difference between the value of the car at the start and end of your agreement.The difference between LP and PCP is that your final payment - the balloon payment - is compulsory. 
Benefits of LP
  • Lower monthly payments than if you opted for HP
  • You can settle your agreement early by paying off outstanding payments
  • Own a car you may not have been able to afford to buy outright
What should you consider?
  • Unless you decide to part-exchange your vehicle before the end of your agreement, you’re obliged to pay the balloon payment 
  • If you want to part exchange your vehicle and it’s worth less than the future value, the deficit will be added to your new finance agreement

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