Personal Contract Hire Explained

What is personal contract hire (PCH)?

Personal contract hire (PCH, also known as personal leasing) is a long-term vehicle rental agreement. It is a solution for private individuals and is becoming an increasingly popular alternative to purchasing brand new vehicles among car users.

You pay to ‘rent’ the vehicle throughout the duration of your contract, and then return the vehicle at the end of the agreement, leaving the finance company to worry about depreciation values and disposal of the car.

How could PCH work for you?

If you choose to lease a car on a personal contract hire basis, you will make a series of monthly payments for the duration of your lease agreement (24 or 48 months, for example), having already paid an initial deposit.

You pay for the use of the vehicle throughout your contract, and then return the car to the finance company at the end of the agreement without any further obligations, leaving you free to lease or purchase another vehicle.

Alternatively, you have the option to pay the remainder of the vehicle’s value – otherwise known as the balloon payment – and then own the vehicle, depending on the finance company, as in personal contract purchase.

Video: PCH and contract hire explained

This type of leasing contract is also available to business customers, in the form of ‘business contract hire’, otherwise known as simply ‘contract hire’. To find out more about this, click here.

For a brief but clear overview of PCH and business contract hire, watch the video below.

Am I eligible?

This type of agreement is available to all financially eligible drivers looking to lease a vehicle for private use. To find out whether you’re likely to be eligible, take our finance eligibility questionnaire.

Am I eligible for Personal Finance? Take our short questionnaire and find out

The key features of personal contract hire

  • PCH is the most common form of private car leasing
  • Fixed monthly payments cover the rental of the vehicle, plus any maintenance options if chosen
  • The monthly payments are calculated by taking the following into consideration:
    • The cost of the vehicle
    • The contract period
    • Anticipated residual value of the vehicle (how much the vehicle is likely to be worth at the end of the contract)
    • Mileage allowance (as chosen by you before the start of your contract)
    • Any additional options, such as a maintenance contract
  • You never technically own the vehicle – it remains the property of the finance company. However, this means you do not need to worry about the vehicle’s depreciating value

The key benefits of PCH

  • Low initial payment
  • Fixed rentals for the whole package, making budget planning easier
  • Flexible terms to meet your finance requirements and driving habits – with variable contract duration and mileage terms
  • Maintenance of vehicles can be included in the monthly fees, spreading the cost
  • Allows you to use a vehicle that might otherwise be unreachable in terms of its on-the-road (OTR) cost
  • When returning the vehicle at the end of your agreement, you do not need to worry about it depreciation or disposal

What happens at the end of the contract?

At the end of the contract, the vehicle is returned to the leasing provider, meaning you are free to hire or purchase another vehicle without any outstanding financial obligation.

If you have exceeded your agreed mileage, an excess mileage charge will be payable, worked out on a ‘pence per mile’ basis as set at the start of your contract.

When returning your vehicle, it will also be assessed according to the BVRLA Fair Wear and Tear guidelines. Any damage that falls outside of these guidelines may be subject to end-of-lease penalty charges. For more information on this, visit our Fair Wear and Tear guidelines page.

Alternatively, some finance providers may allow you to purchase the vehicle at the end of your agreement, as in the case of personal contract purchase. Be sure to discuss your end-of-contract options with your sales advisor should you have any questions.

Personal contract hire case studies

Case study 1:

David is a manager in publishing, is married and has three children. He takes out a personal contract hire agreement on a BMW 3 Series Touring.

The contract:

  • Duration: 24 months
  • Annual mileage: 12,500
  • Initial payment: £1,342.62 inc VAT
  • Monthly payments: £447.54 inc VAT

At the end of the two year contract, David returns the vehicle to the finance company. He then chooses to take out another PCH agreement on the latest model of the BMW Series 3 Touring for a further 24 months.

Case study 2:

Matthew is a fitness instructor and is a single father of one. He takes out a personal contract hire agreement on a Volkswagen Golf.

The contract:

  • Duration: 36 months
  • Annual mileage: 15,000
  • Initial payment: £1,013.61 inc VAT
  • Monthly payments: £337.87 inc VAT

At the end of the three year contract, Matthew is given the option of purchasing the vehicle by making a final balloon payment. As he is happy with the vehicle, he decides to take this option and takes full ownership of the Golf. The car now belongs to him, and he has no further obligations to the finance company.

Please note: case studies created for illustrative purposes only.

Leasing deals

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If you’re looking to lease a car on a personal contract hire basis, search our extensive catalogue of brand new vehicles, or view our latest leasing offers. Alternatively, call our leasing specialists on 0844 482 9595 to discuss the options available to you.

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