Personal Leasing

Deciding how to finance your vehicle is probably the most important thing you will do after financing your property. Many people are now choosing to lease their next car rather than purchasing it outright. (Insert some SMMT stats). The two most popular types of Personal Leasing are Personal Contract Hire and Personal Contract Purchase. The information below should help you decide which type of Personal Leasing is best for you.

Personal Contract Hire

Personal Contract Hire (PCH) is similar to Business Contract Hire, but applies exclusively to private individuals.

A PCH agreement works just like a long term rental agreement. You take possession of the car for the duration of the contract but although the car is in your control you don’t actually own it. Instead, you make fixed monthly payments to the leasing company. When the contract expires you simply return the car to the leasing company or take out a new lease. This will suit people that have no desire to own the vehicle at the end of the contract but enjoy taking delivery of a new car every few years.

 What are the pro’s and con’s of personal Contract Hire?

There are a number of benefits to funding your vehicles through PCH including;

  • PCH gives you a fixed monthly cost throughout the contract term
  • You can include a maintenance package to include the cost of all routine service and maintenance including tyres
  • Monthly rentals are usually much lower than the cost of a bank loan
  • Manufacturers often run special offers meaning you can often lease a car that you have been unable to buy due to its high list price.
  • If you are an employee that receives a Car Allowance from your employer you won’t have to pay the Benefit In Kind tax that you would if you opted for a company car.

There are disadvantages to PCH too, some of which include;

  • You need to estimate your expected annual mileage as this will determine the monthly rental. If your vehicle is returned with greater than contracted mileage or if it is in poor condition, you will be liable for end of contract charges
  • Unlike Personal Contract Purchase, there will is no option to buy the vehicle at the end of the contract

Personal Contact Purchase

Personal Contract Purchase (PCP) is similar to a Hire Purchase agreement.

With a PCP agreement you pay an initial deposit followed by a fixed number of regular monthly payments. You then have the option to buy the car at the end of the contract by paying a balloon payment known as a Guaranteed Future Value (GFV). The GFV is agreed with you at the start of the agreement.

The main difference between PCP and and Hire Purchase agreement is that with PCP you are only paying off the depreciation on the car (the difference between the cost of the car and the GFV) rather than the full cost of the car.

After the monthly payments have been completed you will have the following options:-

  • Pay the GFV to take ownership of the vehicle
  • Hand the car back
  • Use the car as a part exchange on your next vehicle

PCP suits people that want to have the option to own the vehicle at the end of the contract.

What are the pro’s and con’s of personal Contract Purchase?

There are a number of benefits to funding your vehicles through PCP including;

  • PCP gives you a fixed monthly cost throughout the contract term
  • With some providers you can include a maintenance package to include the cost of all routine service and maintenance including tyres
  • If the current market value is less than the GFV you can simply hand the car back but if the market value is higher then buying the car might make more sense as you can make a profit from the equity in the car or use this towards the deposit on your next car
  • Monthly rentals are usually much lower than the cost of a bank loan or Hire Purchase agreement
  • Manufacturers often run special offers meaning you can often lease a car that you have been unable to buy due to its high list price.
  • If you are an employee that receives a Car Allowance from your employer you won’t have to pay the Benefit In Kind tax that you would if you opted for a company car.

There are disadvantages to PCP too, some of which include;

  • You need to estimate your expected annual mileage as this will determine the monthly rental. If your vehicle is returned with greater than contracted mileage or if it is in poor condition, you will be liable for end of contract charges
  • If you wish to buy the car at the end of the agreement you will need to pay the balloon payment.

Which Personal Vehicle Finance Offer is Right For Me?

Everyone is different so there is no right answer here but if you want to change your car regularly, say every 2 or 3 years for a brand new one, then PCH or PCP is often the best choice.

If you prefer to own the vehicle without making a lump sum payment at the end of the contract then Hire Purchase might be better for you but this is likely to result in higher monthly payments.

Agility Fleet are not tied to any particular manufacturer or finance house so for impartial advice, please call one of our advisors who will be delighted to assist you.