What is Personal Contract Hire and how does it work?
Car leasing is becoming popular in the UK, growing year on year as people seek to lease better, newer cars for a fraction of the price.
Most people don’t have the cash to pay for a car, so leasing is a simple, affordable way to get a vehicle that compliments your lifestyle in a loan agreement with a fixed monthly payment.
If you’re thinking of leasing a car, you’ll want to get an understanding of all the different types of lease agreements. In this guide, we’re going to explain what personal contract hire is and how it works.
What is Personal Contract Hire?
Personal contract hire (PCH) is a type of lease contract, and one of the most popular ways to rent a car long term.
You drive the car throughout the agreement and then hand it back to the dealer at the end of your contract.
This removes any responsibility for what happens to the vehicle after your lease on your part. The dealer will have to sort out what happens to the car when you return it.
After your lease agreement is over, you’re free to lease a new car and start a new contract.
What’s the difference between Personal Contract Hire and Personal Contract Purchase?
Personal contract hire is quite rigid, you have to hand the car back at the end of your lease contract. Personal contract purchase offers more flexibility to the leaser, as you can either hand the car back or buy it at the end of your lease agreement.
How does Personal Contract Hire work?
When you know you’re going to take out a loan for personal contract hire, the first thing you need to do is figure out your deposit.
Your deposit and part exchange
Once upon a time, deposits were compulsory. But some dealers work with lenders who accept no deposit loans. The higher your loan amount, the more you’ll want to consider a deposit. Also, consider your credit rating as taking out a £40,000 car loan when you have bad credit, and no deposit can be a red flag for some lenders. You can also use your old car as a part exchange, which will contribute as your deposit.
Your loan amount and car
When you’ve figured out your deposit, you’ll want to consider how much responsibility you want sourcing your car and how much responsibility you want a dealer to take.
You can either contact a dealer direct, get your loan in place and let them help you find a car. For example, if you know you want to stay within a monthly budget of £250 and you need a car fast, trawling around various websites can take time and effort you don’t have. You may notice your vehicle isn’t in stock either, but most dealers will source cars for you.
Or you can search for a car within your budget and then get in touch with a dealer. This approach is better for people who have more time, want to shop around for the best deal or don’t have an affinity to a particular leasing company.
Use our ‘Help Me Find a Car’ tool to get started finding your next car.
Your agreed yearly mileage
You’ll also want to consider your mileage. Because mileage affects the value of the car and more miles means the car depreciates quicker, dealers need to know how many miles you’ll do in a year. Be as honest as you can as going over your yearly mileage will incur a cost.
Your lease duration
You need to figure out the duration of the lease agreement as well, which is usually 1-5 years. Bear in mind; any new cars will have manufacturer’s warranties, so check how long your cover lasts.
Once you’ve been through this process you’ll have something like this:
- New Audi A4 Saloon / £0 deposit / £244.50 per month / 3-year lease and three-year manufacturer’s warranty.
How is my monthly rental amount calculated?
Your monthly rental amount will be a combination of the following:
- The cost of the vehicle
- The contract period
- How much the vehicle is likely to be worth at the end of the contract
- Mileage allowance
- Any extras, such as a maintenance contract
What happens at the end of a Personal Contract Hire agreement?
A personal contract hire lease agreement doesn’t’ allow you to buy the car at the end of the agreement. PCH is for people who know they don’t want to own the vehicle and want to lease another car at the end of their term.
This could be older or younger people that don’t want the responsibility of owning a car or don’t have the financial backing to fund repairs or people who love to drive new cars every few years. It all depends on your circumstances and what you want from the vehicle.
If you do love the car, you can ask for a loan extension, but it’s at the lender’s discretion. If you’re in luck, there may be a newer model, or you can lease the same model again.
What are the pros and cons of Personal Contract Hire?
Pros:
- Drive a new or nearly new car without having the responsibility of ownership.
- Fixed monthly rentals, making budgeting easier.
- Lower monthly payments as you aren’t paying for the cost of owning the car.
- If the car does depreciate more in value than was expected, you won’t incur any charges.
- Bespoke contracts, you control mileage, car and your lease duration, so you’re always in control.
- You don’t have to sell the car as you have to hand it back.
- Drive a car you wouldn’t usually be able to access.
- Cover servicing costs by adding a maintenance package, taking more responsibility away from you.
- As you aren’t the registered owner, road tax is included.
Cons:
- Early termination is expensive.
- Exceeding your agreed mileage will incur costs, and you can’t amend your mileage after you’ve signed the contract.
- If you don’t hand the car back within fair wear and tear guidelines you’ll be subject to charges.
- Lease terms are rigid, you cannot buy the car at all.
- You don’t have anything to show for your money at the end of the agreement.
- Some companies have restrictions on driving outside of the UK.
Can I cancel a Personal Contract Hire lease?
As with any loan you’re entitled to cancel within the 14-day cooling-off period. However, any cancellation after this can be tricky. Your lender may incur hefty charges to release you from the contract or make you pay the full loan amount.
Ensure you read the terms and conditions of your loan before you agree to it, and look at PCP finance, which allows you to start a voluntary termination providing 50% of the loan is paid.
What if I crash the car?
If you crash the car while you’re in your agreement and you have comprehensive insurance you should be covered. It all depends on the extent of the damage.
If you write the car off the finance company will want to settle the loan. Your insurance company will pay out but it might not cover the cost of the loan, so you could end up owing thousands even after you pay back the lump sum.
This is why most companies offer gap insurance, so you know you have cover if the car is written off.
How do I get a cheap deal?
When you’re looking for a deal compare look at the initial rental and the fixed monthly cost. Also, play around with the duration as longer contracts equals lower payments. You’ll also want to check your credit score, as people with good credit get cheaper deals than those with bad credit or other financial difficulties.
Can I get a Personal Contract Hire deal with bad credit?
Yes, you can still get a personal contract hire deal with bad credit or other financial marks like an IVA and in some cases, bankruptcy. However, every person is judged on a case-by-case basis, so some people with average or good credit may be refused finance. We can’t make any promises, but it is possible.
How do I find out if I’m eligible for Personal Contract Hire?
There are certain things you need to provide to determine whether you’re eligible to apply for personal contract hire:
- You have to be 18 or above.
- You need to have a full UK driver’s license.
- Three years worth of address history.
- Three years worth of employment history.
It isn’t a necessity, but we would advise you to get an idea of your credit history as this will give us an idea of whether you’ll be able to access the cheapest deals.
How do I get started?
Leasing with Zero Deposit Leasing is simple; all you have to do is:
- Search for a car or use our free soft credit check tool to see if you’re preapproved for car finance (no impact on your credit score).
- Liaise with your account manager, who’ll go through the application with you.
- Once we arrange your finance, you can pick your car up from our Blackburn showroom, or we can arrange nationwide delivery.
Use our car search to find the car you want!