What is Personal Contract Hire? Everything you need to know

Want to know more about Personal Contract Hire? We’re here to help you decide whether it’s the right car finance option for you or if another car finance option might suit you better.

We’ve looked at Personal Contract Hire pros and cons and how it compares to PCP finance and Hire Purchase finance.

What is Personal Contract Hire?

Let’s start with the basics: what is Personal Contract Hire?

Personal Contract Hire (PCH) is a type of long-term car rental agreement. It’s usually only available to brand new cars. If you’re looking to finance a used car then other options which we cover off below might be more suitable.

You’re required to pay fixed monthly payments for the duration of your agreement, which usually lasts between two to four years.

With PCH, you don’t have the option to buy the car when your lease ends. It is essentially a loan of a car that you hand back when your contract is up.

You’re normally required to pay a rental fee upfront at the beginning of your contract, usually the equivalent of six months lease. The larger this initial payment, the lower your monthly repayments will be. Agreeing to a longer contract often reduces monthly repayments too.

As part of the terms of your lease, you’ll have to agree to a maximum mileage amount and the condition the car should be in once you hand the keys back. It’s important not to underestimate your mileage, as you will incur per-mile penalty charges if you go over.

Similarly, you will be charged for any damage beyond low-level wear and tear.

Personal Contract Hire pros and cons

Pros:

· If you’re someone who likes variety, you get to change your car every few years.

· You may be able to afford a more expensive car.

· You don’t need to think about buying or selling it at the end.

· You won’t lose any money to depreciation.

Cons:

· Your monthly repayments don’t go towards owning the car.

· You’ll be charged if you go over your mileage agreement.

· You’ll be charged if the car has any damage.

· If you end your agreement early, the contract termination fee may be large.

If you’re not sure PCH is for you and you want to weigh up your options, here’s a quick look at how it compares to Personal Contract Purchase and Hire Purchase agreements.

PCP VS PCH

PCP finance is a similar car finance option you might prefer over PCH if you’re considering buying the car.

What’s the difference between PCP and PCH?

The main difference between PCP vs PCH is that PCP offers you the option to buy or part exchange the car when your contract is up.

Monthly repayments tend to be more with PCP than PCH.

PCP payments are based on Minimum Guaranteed Future Value (MGFV), which calculates what the car will be worth at the end of your agreement. You don’t pay off the full value of the car. You pay the difference between what it’s worth at the beginning and what it’s forecast to be worth when your agreement finishes.

This will be divided by the number of months in your contract, minus your deposit to determine how much you pay monthly. Plus any interest.

At the end, if you wish to buy the car, you pay the balloon fee agreed at the beginning of your contract, or trade it in for another car.

Key differences at a glance:

· With PCP you have the choice to own, return or part exchange the car.

· PCP usually involves a deposit.

· You pay a balloon payment if you want to buy the car.

PCH vs HP

HP finance from Zuto is another car finance option you might want to consider. Here’s all you need to know about Personal Contract Hire vs Hire Purchase.

What’s the difference between PCH and HP?

With a HP agreement, you will own the car at the end of your contract. You pay a deposit at the start of your agreement, and your monthly payments will pay off the car in full. You will also be charged interest which will be included in your monthly repayment amount.

Unlike PCP or PCH, there are no mileage restrictions or damage charges with HP, as the car is yours at the end.

Monthly repayments can be higher with HP, as you’re paying off the full value of the car, but you will own the car at the end of agreement unlike PCP and PCH.

Key differences at a glance:

· You have full ownership after the final monthly payment – no extra costs.

· No mileage restrictions or damage charges.

· No deposit options available

The takeaway

We hope this has cleared up your questions about Personal Contract Hire. PCH is a great car finance option if you don’t want to own the car at the end of your agreement. The monthly repayments are usually cheaper than PCP and HP, and you get to change your car regularly.

However, because you won’t own the car at the end, the downside is that you won’t have anything to show for your monthly repayments when your contract is up.

If you do want the option of purchasing your car at the end of your agreement, PCP finance or HP finance are better suited to you.

PCP offers more flexibility – you can decide at the end whether or not you want to purchase your vehicle with a balloon payment, or trade it in for another car, or just walk away.

Or, if you know you definitely want to keep your car at the end, paying off your car with a HP finance could be the best option for you.

Check out our full range of car finance options at Zuto. Our help and advice hub also has answers to common car finance queries you may have.