Personal Contract Hire Car Leasing Explained
Personal Car Contract Hire (or Personal or Private Car Leasing as it is sometimes called) is simply a method of long term rental, with a mileage allowance, providing you a fixed monthly payment for the car or pick-up that you want.
You can choose how long you want to keep the vehicle for and simply send it back and order a new vehicle at the end of the contract. It is a really simple way to budget your motoring costs, as all you do is insure and put fuel in your vehicle - especially if you opt for "with maintenance" contract hire.
Why do you want to buy and own car or pick-up when they will lose value over time?
Personal Contract Hire (PCH) protects you from the depreciation risk of owning a vehicle and can include maintenance cover/breakdown cover (optional), vehicle excise duty and much more. This finance method can be attractive for company car "opt out" employees or just private individuals who do not want to tie up cash in their car or pick up, nor have the financial risks of owning their vehicle.
You can reduce the administration of buying, servicing (if part of the contract) and disposing of vehicles by personal contract hire via our Contract Hire Partners.
Remember, just hand the vehicle back at the end of the contract and order a new vehicle - it's as easy as that!
Below is a list of advantages and benefits of contract hire and also the things you need to know about this method of vehicle financing. Please do have a look at the points below so you are fully informed about this methof vehicle finance.
You may also want to look at the Contract Hire Jargon Buster under the Useful Information section as this explains many of the terms you will hear.
Advantages and benefits
- Even though a vehicle actually costs more to buy, the contract hire rental for a more expensive vehicle may be less, due to the method of setting a contract hire rental. This is due to the different depreciation rates of vehicles.
- The Personal Contract Hire initial payment is usually three months rental but sometimes flexibility can be offered.
- Thereafter one monthly payment, payable by direct debit, covers most costs providing better budgeting.
- No benefit in kind if you are opting out of a company car scheme.
- Enjoy the contract hire and leasing company purchasing spend power and discounts.
- Freedom from vehicle disposal worries and the risk as this is the job of the contract hire and leasing company.
- The Contract Hire leasing company recovers the VAT on the vehicle purchase, which means the vehicle costs less to finance. This financial benefit is reflected in the rental that you pay.
- Reduced administration and risk as maintenance, mechanical repair, replacement car, breakdown recovery, tyres, batteries and exhausts can all be part of the contract hire package.
- Vehice Excise Duty (Road Fund Licence) is normally included in non maintenance or maintenance contract hire.
- As the driver of the vehicle, the Contract Hire company may provide you with a purchase price to buy the vehicle at the end of the contract if this is acceptable to both parties, but you need to check this with each leasing company.
- Once you place an order for your car or van, in the colour you want and with your accessories, the leasing company sources the vehicle from their network of dealers. Or if you have your own dealer that you want to use, the leasing company may buy the vehicle from them, if they offer the usual purchase discount terms the leasing company enjoys.
- The car or van is usually delivered nationwide to your door free of charge (UK Mainland) and at the end of the contract it can also be collected too.
Things you need to know
- Add VAT to the rental as you cannot claim the VAT back as a private individual.
- Always check the annual mileage and the total number of monthly payments you will be making (including the initial deposit rental), if obtaining other quotations elsewhere, to ensure you are comparing like for like.
- Many other companies advertise low rentals but when you look at the innitial rental it may be six months up front or even higher.
- Always ask if there is a document fee involved as if you divide this fee by the number of months in your contract the "actual monthly" rental is higher than you think.
- Personal Contract Hire (PCH) is a fixed contract to term and mileage. Go over the contract mileage and you will pay an excess mileage charge at the pence per mile rate quoted.
- There will be a termination charge, if you decide to return the vehicle early to the contract hire company. It may never happen to you but just be aware of this.
- If you opt for a non maintenance contract then if the vehicle breaks down it is up to you to fix it as the manufacturer guidelines.
- It is unlikely that a part exchange of your old vehicle will be provided so you will need to sell it before entering into a new personal contract hire arrangement.
- If you don't opt for breakdown cover as part of your contract check what the manufacturer offers free of charge(normally it's the first year only but this does vary).
- If you damage the vehicle, it needs repairing and it is your fault, then this is not covered under the "with maintenance" contract.
- Glass and windscreen replacement is not normally covered under the "with maintenance" contract. It may be covered under your vehicle insurance however.
- If you return the vehicle in a damaged condition, other than "Fair, Wear and Tear" you may be liable for a bill.
- You need to insure the vehicle in line with the contract hire company requirements.
- If the vehicle is written off for any reason, you may be liable for the difference between the vehicle book value of the contract hire company and what your insurance company pays out.