How does Personal Contract Hire (PCH) work?

Personal Contract Hire explained

What is Personal Contract Hire?

Personal Contract Hire, also known as PCH or car leasing, is essentially a long-term car rental agreement where you pay a fixed monthly fee to use the car for an agreed time period. It is exclusively for private individuals and helps to combat the problem of depreciation. Though the car is in your possession, it is never actually yours to own.

Leasing a car is just like leasing or renting anything else. For example, if you rent a house or flat, first you pay a deposit and then you get the use of it for an agreed period, during which you pay a set amount each month. Once the contract ends, the property reverts back to the landlord.

The same principle is applied to car leasing and PCH. The deposit is usually equivalent to three to six times the monthly payments you would make for the make and model of the car you are renting. You then decide how long you want to lease the car for and set an agreed monthly payment to be paid for the duration of the lease term. At the end of the deal, the car goes back to the finance company, and just like with a property, you will need to pay out for any damages.

At the beginning of the contract, the team here at Wilsons will help you to choose an advance rental fee to suit your budget, the length of your payment plan which is usually between 24 and 48 months and the estimated mileage you are likely to incur. We understand that everyone has different needs and we offer flexible finance packages to suit you.

couple signing a personal contract hire agreement
Car Key Close Up

How does Personal Contract Hire actually work?

At the beginning of your PCH contract, the personal contract hire company will work out the 'residual value' of the car. This is the car's value at the end of the contractual period once depreciation has been taken into account. 

In order to estimate this value accurately, you will be asked to estimate the mileage you are likely to incur. It is important to be as accurate as possible because if you exceed the agreed mileage limit you will be subject to a charge per mile.

To calculate your payments, the personal contract hire company will deduct the estimated residual value from the retail price of the car, leaving you to pay the difference in fixed monthly instalments.

With Personal Contract Hire on new cars, your monthly payment includes a maintenance package to cover non-fuel running costs such as car tax and a manufacturer warranty for routine servicing.

Depending on the length of your contract and the age of the car when you take the contract out, it is unlikely that you will have to worry about warranty expiring or MOT costs.

What happens once the Personal Contract Hire deal has finished?

Once you have come to the end of your monthly payments you will have two options. The first is that you can choose to extend the lease on the car. If this is the option that you decide to choose it is worth contacting the finance company around three months before the end of the deal to check that they will allow this and to see whether they will offer a lower price on the monthly payment because the car is now older.

The second option that is available to you is to hand the car back. If the car is within the boundaries of general wear and tear and you've stuck within the agreed mileage from the start of the agreement, then there will be nothing additional to pay. If you do go over the mileage limit the charge is usually between 3p and 10p per mile.

It is important to remember that the car is owned by the finance company and you do not have an option to buy it when your Personal Contract Hire deal finishes which also means that you cannot sell it.

Personal Contract Hire Pros

1. Reclaim a portion of the VAT paid on rental fees

2. Option to bundle service costs in with rental payment

3. No commitment to own vehicles outright

4. Lower initial payments and fixed rental fees

5. Free up capital that would otherwise be invested in depreciating cars

Personal Contract Hire Cons

1. You won't ever own the cars or have the option to buy it

2. Additional charges if you go over the agreed set mileage

3. You will be charged extra for any damages deemed not normal wear and tear

4. If the car is written off and the insurer's value is less than the leasing company's, you may be liable for the difference

How To Find Out More

Please get in touch with Wilsons to select a new vehicle and to learn more about the PCH options available at our dealership. As Personal Contract Hire agreements can only be chosen from dealers, and aren't on price comparison websites, you won't find these offers anywhere else.

Call 01372 736 000 for more information about Personal Contract Hire

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