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The Ultimate Guide to Personal Leasing

The Ultimate Guide to Personal Leasing

Thinking about leasing your next vehicle is a massive decision and sometimes it just seems like a world full of confusing terms – what is a minimum guaranteed future value and a balloon payment?  What have balloons got to do with car?  And why are there so many different types?  Don’t worry here at Rivervale Car Leasing we have all the answers and now so can you! 

Personal Contract Hire (PCH)

In Personal Contract Hire you will be entering into a contract with a Finance Company.  You will be given the full use of the vehicle you choose for the contracted period of time; during this time you will never own the vehicle yourself, it will remain the property of the Finance Company.  For use of the vehicle you will need to pay the finance company a monthly fee.

The finance company will decide how much this monthly fee will need to be based on the value of the chosen vehicle, the length of the contract and the residual value of the vehicle at the end of the contract.  The residual value depends upon expected depreciation and includes how many miles the vehicle will have travelled so there will be a mileage limit set out in your leasing contract.

Personal Contract Hire (PCH)

BENEFITS  CONSIDERATIONS
Drive a new vehicle that would be too expensive to buy outright  You never own the vehicle
A fixed monthly price allows for easier budgeting Exceeding your mileage limit will incur extra cost 
Maintenance options available - avoid unexpected motoring costs You must use fully comprehensive insurance 
Vehicle road tax will be included in your monthly fee There is no option to buy your vehicle at the end of your lease 
No worries over depreciation or re-sale of the vehicle Changes to VAT will affect your monthly payment 
usually only a small initial outlay at the beginning of your lease Wear and tear outside of the 'Fair Wear and Tear Guide' will lead to extra cost at the end of your lease 
Flexibility - tailor your lease to your lifestyle, choose a contract length and mileage specific to you It can be expensive to terminate your contract early 

Personal Contract Purchase (PCP)

In Personal Contract Purchase you will have the option to buy the vehicle at the end of your contract.  You will enter into a contract with a finance company relating to your chosen vehicle.  At the beginning of the contract the Minimum Guaranteed Future Value of the vehicle will be agreed upon.  This Value reflects how much the vehicle will be worth at the end of the contract period.  It will depend upon various factors such as the length of the contract and the mileage the vehicle has driven.  At the end of your contract the monthly payments made will not be sufficient to cover the entire cost of the vehicle so there will be a lump sum left to pay called the balloon payment.  This payment will be calculated by considering the agreed upon Minimum Guaranteed Future Value, total of monthly payments made and the conditions of the vehicle at the end of the contract.  You can choose to pay the value of the balloon payment or you can choose not to pay it and return the vehicle.

Personal Contract Purchase (PCP)

 BENEFITSCONSIDERATIONS 
 Drive a new vehicle that would be too expensive to buy outrightExceeding your mileage limit will incur extra cost
A fixed monthly price allows for easier budgeting You must use comprehensive insurance 
Maintenance options available - avoid unexpected motoring costs Wear and tear outside of the 'Fair Wear and Tear Guidelines' will lead to extra cost at the end of your lease 
Usually only a small initial outlay at the beginning of your lease It can be expensive to terminate your contract early 
Flexibility - tailor your lease to your lifestyle, choose a contract length and mileage specific to you Road Fund Licence paid for separately  - not included in monthly payments as it is for other lease types 
The vehicle resale value is agreed at the beginning of the contract so no risk of negative equity You do not own your vehicle until after the balloon payment is made at the end of the contract 
Buy your vehicle at the end of the contract, or hand back  

Personal Hire Purchase/Lease Purchase (HP)

In a Personal Hire Purchase agreement you will be entering into a contract with a Finance Company.  Here the Finance company will be the people who purchase the vehicle, then they will allow you to use the vehicle while you pay monthly instalments over a contracted length of time to cover the total value of the vehicle.  Usually an initial deposit of higher value than the agreed monthly payment will be required.  After this contracted time the vehicle will then be owned by you.

The total of monthly payments will be decided when considering the value of the vehicle at new, the length of contract and the initial deposit made.  To reduce monthly payments are larger balloon payment may be negotiated to be paid at the end of the contract.

Personal Hire Purchase (PHP) / lease Purchase (LP)

 BENEFITSCONSIDERATIONS 
 Drive a new vehicle that would be too expensive to buy outright You only own the vehicle once you've made the final payment
A fixed monthly price allows for easier budgeting If you do not keep up with the repayments the finance company can repossess your vehicle 
You own your vehicle at the end of the contract The finance on your vehicle must be settled before you can resell your vehicle 
Flexible contract lengths to suit your financial position No option to hand back your vehicle - the balloon payment must be made at the end of the contract 

 

You can now call yourself a personal leasing expert!

If you are still a bit confused - our Account Managers will be happy to help !

The comments above do not necessarily reflect Rivervale's views unless clearly stated.

Car related news
10 July 2015
Written by Natalie Faughy
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