Guide to car leasing and personal contract hire

Have you considered hiring a car instead of buying it? That's what leasing agents and personal contract hire schemes offer...

  • Pros: Leasing or personal contract hire is typically the cheapest way to drive a new car, and the most predictable as maintenance is included. Repayment periods are flexible and it’s also easy for businesses.

  • Cons: Compared to Personal Contract Purchase (PCP) it’s harder to end the contract or swap cars early. You never own the car, and you’ll be charged for exceeding agreed mileage.

While Personal Contract Purchase (PCP) schemes are increasingly familiar, people tend to be less aware of the opportunity to use a Personal Contract Hire (PCH) scheme as an alternative.

Basically PCH is a posh name for a long-term rental or personal lease, and it’s becoming increasingly popular with around 12 per cent of finance customers opting to use this route to driving a new car.

It’s a straightforward and simple choice that requires you to choose how long you want to keep a car, and how much mileage you’ll clock up in it. The finance company – or dealer – then calculates a lump sum deposit and monthly payments for the period of the contract.

When the contract expires, unlike a PCP, you don’t get the chance to buy the car with a final lump sum payment. You simply hand the car back and, as long as it’s in good condition, you can call it quits. If the car is damaged you can be charged for repairs, and there’ll be pre-agreed excess mileage charges too.

A big benefit for businesses is that leasing repayments – and therefore PCH schemes – are tax deductible. Essentially you can think of a PCH as a long-term rental agreement, as it works in the same way, but is cheaper because it lasts for a longer period.

That time period is commonly two to three years, while an annual mileage or overall mileage limit will be set for the car at the beginning of the contract, too. If you exceed this mileage, the dealer will take the opportunity to penalise you on a pence-per-mile basis once you've come to the end of the PCH agreement, just like a PCP.

Another similarity between PCH and PCP is that both have an initial deposit to pay. After that, they both have monthly payments to keep up, but unlike a PCP deal, there's no option to buy the car at the end of the PCH term, and this will be made clear when you sign on the dotted line at the start - it's even worded in the small print on ads. While you're not the registered keeper of the car at any time while you own it, it does mean there's no balloon payment to worry about at the end of the contract.

Upon reaching the end of the lease, there is usually the option to take out another lease instead of simply handing the car back. During your time with the car, you are responsible for its upkeep, but servicing, maintenance and breakdown assistance are regularly incorporated into the leasing package with the dealer – helping to keep the cost of motoring predictable.

Don't forget you can cancel your order if you're a 'regulated' customer, you can also change to personal contract purchase within 14 days of the original contract agreement in most instances. 

Because these rental agreements aren't working towards you taking ownership of the car, they tend to be cheaper. They also factor out the cost of depreciation, which is so often the major sting in the tail of new car ownership. 

Click the links below or on the top left of this page to get full guides on each of the key car finance options...

Visit our sister site BuyaCar.co.uk for a wide range of leasing deals

Recommended

Business car leasing: how to lease company cars and save
business car leasing
Buying a car

Business car leasing: how to lease company cars and save

For many traders and businesses, a business car leasing deal provides easy, affordable access to new vehicles
17 May 2022
Franchise vs agency: battle for the future of new car sales
Car salesman
Buying a car

Franchise vs agency: battle for the future of new car sales

‘No-haggle’ agency showrooms mean fixed-price deals for many brands, but they also threaten established dealers and may reduce competition
6 May 2022
Pay-as-you-go black box car finance explained
black box finance
Buying a car

Pay-as-you-go black box car finance explained

Even with bad credit you may be able to get pay-as-you-go (PAYG) car finance with a black box scheme.
5 May 2022
Ex-Motability cars – should you buy one?
Ex-Motability cars
Tips & advice

Ex-Motability cars – should you buy one?

Ex-Motability cars are commonplace on the UK used car market but what are the pros and cons when it comes to buying one?
25 Apr 2022

Most Popular

15 Tesla Supercharger sites open to non-Tesla vehicles in the UK
Tesla Supercharger
Tesla

15 Tesla Supercharger sites open to non-Tesla vehicles in the UK

Pilot scheme to open up Tesla-only charging network to all electric cars lands at selected UK locations
18 May 2022
New all-electric Alfa Romeo Duetto Spider shapes up
Alfa Romeo Duetto Spider - watermarked front
Alfa Romeo

New all-electric Alfa Romeo Duetto Spider shapes up

Alfa Romeo bosses have confirmed that a new two-seat electric roadster is in the company’s rejuvenation plans and our exclusive images preview how it …
19 May 2022
Shell and ABB team up to deliver world’s fastest electric car charger
Shell charger
News

Shell and ABB team up to deliver world’s fastest electric car charger

New Shell and ABB-developed Terra 360 EV charger can add 62 miles of range in less than three minutes
16 May 2022