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PCP vs PCH (Leasing)

Leasing – Personal Contract Hire (PCH)

Leasing a car is just like renting anything else. If you rent a house or flat, you pay a deposit, then you use it for an agreed period paying a set amount each month. Once the contract ends, the property reverts back to the landlord.

It’s the same with vehicle leasing - you chose which brand new car you want, how long you want the car for (2, 3 or 4 years), what payment you can afford upfront (normally 1, 3, 6, 9 or 12 months initial rental) and how many miles you think you will drive. Then find fixed monthly payments that suit your budget. It’s a long term rental agreement so you won’t be purchasing the car, you simply return it at the end of the lease term and get another brand new one if you’d like. Simple.

With leasing there is no interest charge on your payments, you are simply just paying the depreciation on the car. At the end of the term there’s no haggling at the dealership over the final vs estimated value of the vehicle. 

You have no risk when it comes to the value of the car as you’ll never sell it as you don’t own it.

So if you love having a brand new car every few years and crave that new car smell, then Personal Contract Hire (PCH) or Business Contract Hire (BCH) is the most affordable, convenient and hassle-free way to move forward.

The average saving for leasing vs buying is £5 – 6.5k over a 3 – 4 year term. And that’s not even a super-hot lease deal!

PCP – Personal Contract Purchase

With PCP the finance company buys the car, you pay a deposit (dealers normally want at least 10% of the car as a deposit) and fixed monthly instalments for a set time period, usually between 1 and 4 years, so you don’t own the car but the V5 is in your name. 

With PCP there is an interest charge (Typical APRs are 4%-7%) on your payments. It’s likely with PCP you will then have to negotiate a part exchange with the dealership to get a new vehicle, or, you can buy the car outright. 

Before the contract starts, the finance company gives the car a guaranteed final value (GFV) – known as a ‘balloon payment’ - which you can pay at the end of your contract term to take full ownership of the car.

You don’t have to buy it at the end of the term. You can give the car back, or part-exchange it for another car instead.

More often than not, throughout the term of the contract you are in negative equity, meaning if you want to sell the car, the outstanding finance balance is more than the value of the car. 

Additionally you will need to pay the annual road tax on the car and, watch out for extra charges for exceeding your mileage cap!

Is Car Leasing or PCP Better For Me?

Leasing is a good choice if you:

  • Want to drive a new car every few years.
  • Don't need to own the vehicle.
  • Want cheaper monthly payments 
  • Want a lower initial payment (deposit)
  • Want maintenance & servicing included in your monthly costs.
  • Are confident you can make payments for the full term.
  • Want warranty and road tax included free of charge
  • Want to lower risk of not owning a depreciating vehicle 

On the other hand, PCP might be a better alternative if you:

  • Want to own the car at the end of the contract.
  • Are considering a used vehicle, instead of new.
  • Can arrange maintenance & servicing yourself.
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