What is Personal Contract Hire?

Personal Contract Hire is one of our most popular lease agreements.

But, why? What is personal contract hire about?

In this article, we’ll explain exactly what personal contract hire is, it’s pros and cons, and whether it’s right for you.

What is personal contract hire?

Personal contract hire, also known as PCH, private contract hire, private lease or personal lease, is designed for private individuals. Over 70% of our lease agreements are contract hires, so they are pretty popular. You can read our article on the contract hire agreement for businesses here.

Essentially, a PCH agreement is where you have a car for a period of time, usually 2 to 5 years. You pay a series of monthly payments and once that time is up, you hand the car back with nothing else to pay (as long as you keep within the terms of the contract, of course). Think of it like renting a car. The amount you pay monthly is set at the beginning of the contract. As is the mileage. You have to stay within the pre-agreed mileage; otherwise you can face excess mileage charges. But more on that in a little bit.

Who is personal contract hire for?

Private contract hire is perfect for those who;

• Want to change their car every few years
• Avoid the risk of depreciation
• Want to return the car with nothing else to pay

What are the advantages to personal contract hire?

So, why is personal lease so popular? Some of the advantages include;

• You don’t have to worry about depreciation
  • This is probably the biggest advantage of personal contract hire
  • A car starts depreciating as soon as you drive it, so you will make a loss when it comes to reselling.
  • However, with personal contract hire you simply hand the car back.

• You don’t have to worry about the disposal of the vehicle
  • Again, you just hand the car back
  • This means you don’t have to deal with the hassle of selling your car on.

• The monthly rentals are pre-agreed
  • This makes for easy budgeting
• Road tax is included
• You can drive a nicer car for less money
  • Cars that hold their value tend to be cheaper on a personal contract hire. These include cars such as Mercedes, Audi and BMW.
  • So, you could end up paying a lot less for a nicer car than you would if you got a personal contract purchase.
• You also find that cars that tend to have big discounts and hold their value do extremely well.

So you can see why personal contract hire is an appealing option to many.

What are the disadvantages of personal contract hire?

However, nothing is perfect. And, personal contract hire does have its disadvantages. For example;

• You don’t own the car
  • This is quite subjective, but some people like the thought of owning their car.

• You are subject to mileage and condition restrictions
  • As I mentioned earlier, you are restricted to a pre-agreed mileage before your lease contract starts. However, in many cases you can adjust this during the contract.
  • If you don’t, then you can face excess mileage charges.
  • These vary between manufacturer, and can range from 1p/per mile + VAT to £1/ per mile + VAT
  • For more information on excess mileage you can read our article on what happens when you go over your mileage here
  • You also have to keep your car in good condition. This is in line with the BVRLA Fair Wear and Tear Guide. This is the industry standard in terms of the condition of your car when you return it to the finance house.
  • If you do not keep within the standard, then you can incur charges.

• You have to get it serviced
  • While this isn’t necessarily a disadvantage, it’s not included in the contract price. So you have to pay for it yourself. You can read all about servicing your lease car here.
  • However, many brokers offer the option of a maintenance agreement. This makes for easier budgeting. You can read about maintenance agreements here.

How is the cost of personal contract hire calculated?

With a personal contract hire, you essentially pay for the depreciation.

A personal contract hire takes into account the one the road (OTR) price, and the residual value of the car once the contract is over. This gives the finance house an idea of how much the car will depreciate while you are driving it.

You can read our article on what affects the price of a lease car here for more information.

What else should I consider when thinking about personal contract hire?

One thing you may want to consider when looking at personal contract hire is GAP insurance.

GAP insurance is also known as guaranteed asset protection insurance (or some variation of that name). In the unlikely event that you write off your lease car be it by accident, theft or fire, GAP insurance will cover the difference between what the insurance company pays out, and what the finance company asks for to cover their loss. So, you won’t be in a negative equity situation.

You can read all about GAP insurance here.

Hopefully this has cleared a few things up about personal contract hire. It’s perfect for private individuals who want a new car every few years and don’t want to worry about depreciation. However, you are restricted by mileage and you have to keep it in good condition, otherwise you can incur fines.