Personal contract hire explained


Personal contract hire explained

There's a lot of terminology used when it comes to leasing a car, and here the term 'personal contract hire' (PCH) is explained.

Firstly, leasing a car is growing in popularity as a quick and easy way of getting behind the wheel of a brand-new car.

The term personal contract hire, and leasing are used interchangeably but mean the same thing.

Also, the term personal contract hire should not be confused with personal contract purchase, or PCP.

The difference between PCP and PCH is that with personal contract hire, you do not have the option to buy the car when the leasing agreement ends.

With personal contract purchase, you will have the option to buy the car, this is known as a balloon payment and can be a large amount to stump up.


How personal contract hire works

Personal contract hire is simple to understand for those who are thinking of leasing a car for the first time.

You will need to:

  • Calculate what your monthly budget will be
  • Decide how long you want the personal contract hire agreement to run for
  • Decide on the initial payment which is equivalent to one month or up to nine months of the monthly instalment with Tilsun Leasing
  • And then choose the make and model of car for meeting your needs.

There are two issues to remember about personal contract hire, and they are:

  • When the PCH agreement ends, you are not able to buy the car. You simply hand it back to the car leasing company and decide whether you want to lease a new one
  • When deciding on how much to pay as the initial payment, the larger amount that you choose means that your monthly payments will be lower.

The best way to determine the difference between a PCH and PCP agreement, is that with a personal contract hire deal you are essentially renting the car from the leasing company.

With PCP, you are also renting but have the choice of buying the car when the agreement ends.



PCH mileage allowances

When leasing a car, you will need to decide what your annual mileage will be.

It's important that you calculate this figure carefully so that you avoid excess mileage charges.

These charges can be quite high depending on the car leasing company's own rules - from a few pence per mile, and up to 30p.

It's easier and cheaper to work out how many miles you travel every year, and then add 1,000 or 2,000 miles to ensure you do not go over your agreed mileage allowance.


The pros and cons of personal contract hire explained

As with most financial undertakings, there are pros and cons when it comes to personal contract hire.

The pros for leasing a car include:

  • Your monthly payment could be less than other finance agreements
  • There's no need to worry about the car's depreciation since you do not own it
  • Car leasing companies will include the road tax
  • Some leasing firms also offer a maintenance and service package so there's peace of mind that you don't have to worry about servicing costs.

The cons for leasing a car include:

  • You do not own the car - and cannot buy it when the agreement ends
  • You need to remain within your annual mileage allowance or face excess mileage charges
  • You must return the lease car in good condition or face a 'fair wear and tear' charge for the repairs
  • You cannot modify the vehicle.

Don't forget too that you will need to insure your leased vehicle for driving on the UK's roads.


Cancelling a car lease agreement

Since your personal circumstances may change, it is possible to cancel a car lease agreement before the term ends.

This is known as the early termination and there will be a fee levied when cancelling early.

This fee will vary between various car leasing companies and it's always worth checking the small print of your car lease agreement before signing it.


How PCH works for you

Personal contract hire is a popular way to lease a car and is suitable for most eligible drivers to lease a vehicle for their private use.

Along with having lower monthly payments, lots of people are choosing PCH as a cost-effective way of getting behind the wheel of a more expensive vehicle than they would otherwise be able to afford.


  • PCH monthly repayments tend to be lower than for HP payments
  • You get to change your vehicle for a new one every two, three or four years
  • Your car is covered by the manufacturer's warranty
  • Drivers can enjoy a premium marque, or a vehicle that has more features and equipment.
  • A driver doesn't have to pay out for a brand-new car by spending all of the money upfront.

Instead, when leasing a car, the driver is essentially paying for the car's depreciation which is why the payments are lower.

And when the leasing agreement ends, there's no obligation remaining, and you just hand the car back.

Someone from the car leasing company will come and inspect the vehicle for damage and ensure that the mileage allowance has not been exceeded.

It's at this point we should highlight that if you fear that you are about to exceed the annual mileage that the car leasing company is only interested in the mileage at the agreement's end.

However, if you are travelling more miles than usual, then you should contact the car lease company.

They will then make a calculation to adjust your monthly payment to take in a higher mileage need.

This will help when you need to hand the car back to avoid the excess mileage charge.

And when the agreement ends, you can decide whether you want to lease a new vehicle or choose another way to finance a car.


Other positives to a personal contract hire agreement

While you will never own the car, you also need to consider:

  • You won't have the hassle of selling the car if you own it
  • There's no need to advertise it and deal with potential buyers, or trade it in for a new car
  • You have an opportunity of driving a car that you may not be able to afford if you had to buy it outright.


About personal contract hire deals

If you would like to know more about personal contract hire deals and the difference between personal contract purchase PCP then you should speak with the Tilsun Leasing team on 03330 040 888.

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Lex Autolease
Leasing Broker Federation

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