However, despite the similarities, there are significant differences between these two methods of getting a new car. If you're having trouble deciding which route to take, we have put together a Car Leasing vs PCP guide to help you choose which is right for you.
What is Car Leasing?
Leasing a car is essentially a long-term rental. Once you've chosen the vehicle you want, you usually have to make an upfront payment and regular monthly payments to use a car for several years, typically between 24-48 months. You then return the vehicle at the end of the lease and decide if you want to start a new lease, buy a car, or go without a car.
With car leasing, the finance provider owns the car and the value of the vehicle is set at the start of the contract. Depending on which contract type you choose depends on whether you have the option to purchase the vehicle when the contract expires.
There are also charges with car leasing if there is any damage beyond fair wear and tear and a penalties if you exceed your pre-agreed mileage limit. Plus, it's not your problem if the car is worth less than expected due to depreciation at the end of the lease, as the leasing company takes the risk.
What is PCP?
Personal contract purchase (PCP), sometimes known as a personal contract plan, is a type of car financing for individuals buying on instalments. This kind of lease allows you to either purchase the car outright or return it to the financing company at the end of the contract after an initial deposit and a series of monthly payments that effectively cover the vehicle's depreciation.
Compared to a Hire Purchase arrangement, where your deposit and monthly payments cover the entire value of the vehicle, PCP makes payments more manageable. However, it also means that even after you've completed all of the PCP monthly payments, you still don't automatically own the vehicle.
If you want to own the car, you must make the large optional final payment at the end of the contract. Depending on the type of car and contract terms, this typically amounts to a third to half of the car's initial price. It is, therefore, best to prepare how you would pay for this from the beginning of the contract if you know you want to keep the automobile, though it is also possible to refinance this amount.
What is PCH?
Personal contract hire (PCH), also known as personal leasing, allows you to drive a new car over an agreed period of time and mileage. With a PCH agreement, you can afford a new vehicle without experiencing the significant value loss that comes with buying one outright. You can also include a vehicle maintenance contract for servicing, maintenance and repairs, allowing you to plan ahead for all your motoring expenses.
You will need to return the vehicle to the finance company at the end of your personal contract hire agreement as you do not have the choice to purchase the vehicle. The vehicle must be returned to the leasing company in a condition that complies with the BVRLA's fair wear and tear requirements to avoid being penalised.