What is Personal Contract Hire?
Personal Contract Hire (PCH) is a way to fund your car in which you pay an initial rental, followed by an agreed number of monthly rentals, for an agreed period of time. At the end of your contract you will hand your car back to the leasing company, you will never own your vehicle.
How does personal contract hire work?
At the beginning of your contract
After you have found the car you wish to drive you will asked to decide upon the following features of your contract;
- Mileage - how many miles are you likely to travel over the course of the contract?
- Contract length - how long would you like to retain the car for? Typically contracts are between 24-60 months.
- Initial rental - how much money would you like to pay in the first month of your contract. It is usually a multiple of the monthly rental shown and are typically 3,6 or 9 times the monthly rental. The initial rental is part of the total cost of the agreement, it is not a deposit and will not be returned to you at the end of your agreement. The higher the initial rental the lower the monthly rentals will be.
These figures are then sent to the leasing company along with your personal details needed for a credit check to be performed. The broker will ask you to provide the documents needed for your finance application and credit check and submit these for you. If your application is accepted the leasing company will buy the car on your behalf and your new car will be delivered to you.
Monthly rentals in a personal contract hire agreement
During the course of your agreement you will be required to pay a regular monthly rental to drive your car. This figure is agreed at the start of your contract and is fixed for the duration of the contract.
You will be paying for the cost of depreciation over the duration of your contract, not the total cost of the vehicle. This can make the monthly rentals in PCH lower than other forms of car finance where the whole vehicle cost is considered, such as Hire Purchase. It also makes more prestige vehicles which have lower rates of depreciation more affordable.
At the end of a personal contract hire agreement
At the end of your contract you will not have an option to own your vehicle. The car will always remain the property of the leasing company and so you must hand your vehicle back. Your broker can arrange for the vehicle to be collected from the address you indicate is most convenient and you can move on to your next brand new vehicle.
Benefits of a Personal Contract Hire agreement
You can pay a low initial rental to be paid, followed by monthly rentals which are typically lower than monthly payments involved in a Hire Purchase or Personal Contract Purchase agreement, allowing you to drive a car you may not otherwise be able to afford.
Monthly rentals are fixed which allows easier budgeting for you. You can also include a maintenance package in your contract. This spreads the cost of all servicing costs and replacement of wear and tear items including tyres over the length of your contract. This reduces the risk of any unexpected maintenance costs.
Road tax is included in most personal contract hire agreements.
Flexibility in a PCH agreement
You can tailor your contract to suit your lifestyle. You can choose who much you would like to pay as an initial rental, how many miles you would like to travel, and whether you would like maintenance included (funder maintained).
Pros and Cons of Personal Contract Hire at a Glance
Benefits of PCH
- Low initial outlay
- Fixed monthly rentals
- No risk of depreciation
- Maintenance can be included
- Road tax included
- Tailor your contract to suit your needs
Considerations of PCH
- You will never own the vehicle
- You must have fully comprehensive insurance
- Charges will apply for excess mileage
- You will be required to pay for any damage outside of fair wear and tear guidelines
- There may be a fee to pay if you wish to terminate your contract early
- Changes to VAT will affect your monthly rentals
Considerations in a PCH agreement
You will have agreed how many miles you would like to drive the car for at the beginning of your contract. This figure is used when considering the depreciation of the vehicle, and so affects the cost of your monthly rentals. If you drive over the agreed mileage you will be charged a fee for every extra mile. The amount you will be charged will depend upon the finance company funding your car and the make of vehicle. You can find out the excess mileage cost for your car at the beginning of your contract.
Fair Wear and Tear
The better the condition of a car the more valuable it is. When a finance company considers the cost of depreciation it assumes the car will be returned to them in a fair condition, so will check for any damage.
To ensure the same standard is always used the British Vehicle Rental and Leasing Association has produced a guide for all finance companies to use. If there is any damage on your car outside of fair wear and tear guidelines when your vehicle is returned, you will be required to pay for repairs.
You will never have the opportunity to own your vehicle in a PCH agreement. The legal owner of the car will always be the finance company. This means you will need to seek permission if you wish to make any alterations to your car, or if you would like to take your car out of the country.
You will be required to have fully comprehensive insurance and you may wish to consider taking out GAP insurance to protect yourself in the event of a total loss.
Changes to VAT are out of the finance companies control, but will affect your monthly rentals.
Can I cancel a personal contract hire agreement?
If you wish to cancel your agreement you will need to request an early termination figure from your leasing company, your broker will be able to do this for you. There will be a charge for terminating your contract early.
Can I fund a used vehicle on a personal contract hire agreement?
Yes, you can. As depreciation slows after the first few years a personal contract hire on a nearly new car can prove to be more affordable for many people.
At Rivervale we offer our customers the opportunity to lease a nearly new car in conjunction with Arval, one of our funding partners.
Can I part-exchange my current vehicle?
At Rivervale, if you own your current vehicle and would like to enter into a contract hire agreement we will accept any make and model for part exchange. We can arrange for your old car to be collected on the day your new leased car arrives.
If you have any questions about any car finance product, or would like to discuss the funding options available for you our Account Managers are always happy to help. Please give us a call on 01273 433480
The comments above do not necessarily reflect Rivervale's views unless clearly stated.