PCH vs PCP

When it comes to finding your perfect car, you should first consider whether Contract Hire is right for you or if Contract Purchase more suits your needs. This guide identifies the pros and cons for PCH and PCP...

What is PCH and PCP?

Personal Contract Hire (PCH) is rental agreement where you lease a car or van for an agreed amount of time which is usually between 2 and 5 years. You pay an upfront cost that suits you and then pay a set monthly payment until the end of your contract term where you simply hand back the car.

Personal Contract Purchase (PCP) is purchase agreement where you lease a car for a certain amount of time- similar to PCH. You pay an upfront value and a monthly amount that covers the depreciation value of the car. At the end of the agreement, there are three options available to you, you can pay a balloon payment to purchase the car outright, use any remaining excess value in the car as a part exchange for a new agreement or just hand the car back and walk away.


Why Choose PCH or PCP?

PCH:

  • Deposit values and monthly payment tend to be lower than other finance options.
  • As you pay one set value every month with no surprise payments, you can plan your budget in advance and relax when it comes to your money worries.
  • Road tax is included throughout contract term. You also get manufacturer’s warranty included as well as free delivery and collection from your home!
  • Lease deals are affordable so you may be able to find a car within your budget that is a higher specification than you first thought.

PCP:

  • If you really enjoyed your car and wanted to keep using it, PCP gives you the option to purchase the vehicle at the end of the agreement.
  • Deposit values and monthly payments tend to be lower than other finance options.
  • As you pay one set value every month with no surprise payments, you can plan your budget in advance and relax when it comes to your money worries.
  • If the guaranteed future value (a value that you agreed at the start of the contract) is less than what the vehicle is worth at the end then you can take the difference out as profit or put it towards another car.

Things To Consider...

PCH:

  • You do not own the vehicle at any point and must hand back the vehicle at the end of the contract.
  • You have an annual mileage amount that you will need to stick to. If you exceed your limit, you will have to pay an excess mileage charge for every mile over the amount agreed. On the opposite end of the scale, if you are way below your mileage limit, you are not given money back for any unused miles. So, you need you choose your mileage amount carefully.
  • If you are part way through your lease and wish to cancel and hand back early, there may be a termination fee that you will need to pay.
  • The vehicle must be in good condition when it is handed back at the end of the contract and be up to fair wear and tear standards. If you do not take out a maintenance package, you will have to pay for all maintenance on the vehicle.

PCP:

  • Road tax is only included for the first 12 months of the contract.
  • You will have to pay interest on the entire value of the vehicle even if you don’t want to purchase it at the end of the contract.
  • The GFV (guaranteed future value) is non-negotiable, and the agreed amount must be paid.
  • The annual mileage is agreed in advance and if that value is exceeded than an excess mileage amount may need to be paid.
  • If you wish to end the contract early, the must pay the difference between the car’s value at that point and any outstanding payments left. You could create negative equity if you terminate within three years so always make sure this is the right choice for you before you go ahead.

Any Questions?

If you have any questions about whether PCH or PCP is best for you, you can get in touch with our team on 0345 350 3776 or email enquiries@willowleasing.com and we can help you however we can.