Personal Contract Hire (PCH) explained: How it works and if it’s right for you

Driver Guides 

Personal contract hire (PCH) can be a great way to get behind the wheel of a brand-new car faster and cheaper. But how does it work, and is it right for you?

Well, luckily for you, that’s exactly what we’re here to answer! We’re going to look at what PCH is, how it works, its pros and cons, how to decide whether it’s right for you and how it compares to other car financing options.

If you already know your stuff and you’re happy to start building your PCH deal, just give our team a call now on 01299 407 360.

Personal contract hire meaning

Personal contract hire, or PCH, is a type of car finance where you lease a vehicle from a finance provider instead of buying it. Essentially, it’s a form of long-term rental that allows drivers to access newer cars with lower monthly payments.

How does PCH work?

With a PCH agreement, you choose your new car and then speak to a provider or broker such as Gateway2Lease. They’ll ask you to decide how much of an initial rental payment you can make and your projected annual mileage to generate a monthly payment cost. Your credit history will be used solely to determine your eligibility for the lease.

If you’re happy with the terms of your lease, you can sign your agreement, start making payments and expect a brand-new car on your driveway in a flash!

Pros and cons of personal contract hire

There are two sides to every coin – here are some of the benefits and drawbacks of PCH.

Advantages of PCH

• Lower monthly payments compared to traditional finance
• Access to brand-new cars
• Maintenance can be included in monthly costs for convenience
• Protects you from the heavy effects of depreciation
• No hassle of selling at the end of your term

Disadvantages of PCH

• You won’t own the car, and neither can you buy it at the end of your lease
• Initial payments can be higher
• You’ll have to stick to mileage limits
• You’ll be responsible for returning the car in good condition

How to determine if PCH is right for you

Factors to consider when choosing PCH

• Affordability – Ending a personal contract hire early can come with a termination fee, so make sure you can afford your payments for the entire length of your contract.
• Maintenance – Ensure that you’re able to keep on top of your maintenance, as the car will need to be returned in good condition at the end of your PCH (or bundle your maintenance in with your lease for peace of mind).
• Mileage – Carefully consider your annual mileage, as once you set your mileage limit, you’ll have to stick to it.
• Initial rental – You’ll have to pay an initial rental payment at the beginning of your PCH, and the larger the sum you put down upfront, the smaller your monthly payments will be.
• Usage – Your car will need to be returned at the end of your personal contract hire, meaning it needs to be in good condition, so if your regular usage is likely to damage the car, such as off-roading or carrying heavy goods, then PCH may not be the best option for you.

PCH vs other car financing options

There are three other popular car financing options, including personal contract payment (PCP), hire purchase and a personal loan.

PCH vs PCP

PCP is similar to PCH, in that you make an initial rental payment and then make monthly payments. However, with PCP, the money you pay is towards owning the car, and you’ll have the option to make a ‘balloon payment’ at the end to own the car outright.

Even if you choose not to keep the car, you can trade it in for another, using the value of your payments to date as the initial rental payment on the next. However, your monthly payments will be higher with PCP than with PCH. For more information about the differences between PCH and PCP, check out our guide on getting the best deal.

PCH vs hire purchase

A hire purchase agreement is a way to spread the cost of your car by paying for it in instalments. Rather than having an end date where you need to either buy, trade-in or give back, you’ll just continue making payments until you’ve paid off the value of the car. As with PCP, however, the monthly payments are higher than a PCH, and new cars will be less affordable.

PCH vs a personal Loan

This is where you take out a personal loan from a finance provider and use it to buy your new car outright. You then pay back the loan provider as per your loan agreement. This will also be more expensive month to month than a PCH agreement, but you will own the car right away.

Final thoughts: is personal contract hire the best option for you?

As of 2022, around 1.7 million people across the UK were driving their cars through a PCH agreement. Personal contract hire is an affordable way to get your hands on the latest models which might be outside of your budget using other finance methods. However, there are a few things to keep in mind with PCH, such as your mileage allowance.

To make sure it’s the right option for you, consider your financial position, your annual mileage and what you’re likely to use your car for. If you can commit to the payments and stick within the mileage limit, then PCH could be a great choice, giving you access to the car of your dreams at a budget-friendly rate.

Explore PCH leasing at Gateway2Lease

At Gateway2Lease, we specialise in offering affordable personal contract hire deals on a range of the latest models from leading manufacturers. We can personalise your lease terms to suit your needs and help you get the best possible deal.

We’re a trusted, family run lease specialist with almost 20 years of experience offering fast nationwide delivery. To build your perfect deal, just call our team today on 01299 407 360, email us at enquiries@gateway2lease.com or fill out our contact form.

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