Personal Contract Hire
Everything you need to know about Personal Contract Hire (PCH)
PERSONAL CONTRACT HIRE EXPLAINED
So, you’re searching for your next car and you’ve decided you want a lease? Personal Contract Hire could be for you. Personal Contract Hire (known as PCH or Private Contract Hire to those working in the leasing business), is an agreement designed for private individuals. If you are looking for a contract hire arrangement intended for businesses then Business Contract Hire is for you. We have more information about that on our Business Contract Hire page.
It’s definitely the most popular approach to car leasing; over 70% of our lease agreements are Contract Hire.
Put in simple terms, a PCH agreement allows you to rent a car for 1 to 4 years, or up to 5 years if you’re looking at a van contract hire. Once the time is up and you’ve made your final payment on the agreement, you hand the car back with nothing else to pay (so long as you keep within the terms of the agreement, of course).
In essence, you’re paying to use the vehicle for a set period of time, not to own it.
THE PROS OF PERSONAL CONTRACT HIRE
- The depreciation of the vehicle isn’t something you need to worry about as you won’t have to sell it at the end of the agreement
- As well as not having to think about depreciation, there’s no risk of negative equity as you won’t be paying the full cost of the vehicle
- Budgeting will be easy as monthly rental payments will stay low and consistent throughout the contract
- Road tax is included within the contract as you don’t own the vehicle
THE CONS OF PERSONAL CONTRACT HIRE
- You don’t own the vehicle
- Mileage and condition charges will apply if you go outside the contracted terms
- The car has to be serviced, which doesn’t tend to be included in the contract price (although many brokers have maintenance agreements available at an additional cost)
HOW IS A PERSONAL CONTRACT HIRE PRICE DETERMINED?
PCH agreement looks at the retail price and the residual value of your chosen vehicle once the contract is over. This gives the Finance House (who are selling you the contract) an idea of how much they’ll be able to sell the car for after you’ve finished with it.
This is the main reason why a car that holds its value, like Mercedes-Benz or BMW can have such a low rental value when their retail value is much higher than something like a Nissan, for example.
In order to calculate the level of depreciation, the mileage limit you’ve chosen is taken into account. For example, if you’re driving 5,000 miles a year, you can rest assured you’ll be charged less than someone who’s driving 30,000 miles.