Personal Contract Hire (PCH) VS Personal Contract Purchase (PCP)
Financing your new vehicle is an important decision. How much do you know about the different ways to finance your new purchase?
Below we talk you through the advantages and disadvantages of purchasing your new car on either Personal Contract Hire (PCH) or Personal Contract Purchase (PCP).
Personal Contract Purchase
This agreement is very similar to a standard hire purchase agreement. It consists of a deposit at the start of the agreement, followed by monthly payments during ownership of the vehicle and at the end of the agreement there is a final balloon payment; more commonly known as the Guaranteed Future Value (GFV).
How does a PCP Agreement work?
At the start of the agreement the GFV is set; this is how much the vehicle will be worth by the end of the agreement. It is set by the finance company that is being used to fund your new vehicle. This means that your monthly payments consist of how much your new vehicle is going to depreciate over the term of your agreement, plus any interest. Remember, as part of this agreement you are liable to the full amount of finance if anything was to happen to the vehicle.
Once your PCP agreement finishes you will have three options:
Things To Think About
Personal Contract Hire
This is the latest way to fund new vehicles personally. You will make the payments set out in the contract with the funder and at the end of the agreement the vehicle is then handed back to the finance company, without the option to own the vehicle.
Personal contract hire agreements consist of an initial payment and then monthly payments based on the depreciation of the new vehicle.
As most lease companies can purchase these vehicles at a lower price than made available to a normal customer, it means they are able to pass these savings on in the form of lower payments.
There can be costs to handing your vehicle back to the finance company which many customers don’t expect. This applies to both PCH and PCP. These costs are for any damage excluding standard wear and tear and any missed routine servicing. There are also costs involved if you go over the stipulated mileage that you set at the start of your agreement for both PCP and PCH agreements. These can vary from 3p to around 15p per mile, so not excessive.
When considering PCH make sure the payment you are looking at includes VAT. Leasing is predominantly done by businesses who want the payments to exclude VAT, so make sure you ask the question.
Which way is better?
Ultimately, financing a vehicle must be one that suits your needs. PCH gives you the chance to change your vehicle without the hassle of having to sell or part exchange it and normally gives you a lower payment. PCP gives you the chance to buy your vehicle outright if you don't want to continue to payout monthly payments on a regular basis.
* All vehicle images and car descriptions on this site are for illustration and reference purposes only and are not necessarily an accurate representation of the vehicle on offer.
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