Personal Contract Hire (PCH)

There are several different types of car finance available for those looking to buy a vehicle. Whether you're after a new or used motor, car finance is a great way to afford and budget for a large purchase price.

The benefits of car finance are long, but the main positives are that you can plan months in advance, purchase a better, more expensive car if you wish, as you're breaking down the costs, and switch your car every few years if you fancy a change.

The two most popular types of car finance are undoubtedly Personal Contact Purchase (PCP) and Hire Purchase (HP). With PCP, the finance gets secured against the vehicle, but you don't automatically own it until you make all of your monthly payments and pay off the optional final balloon payment. 

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While on HP, the finance gets secured against the vehicle, but once you have made your agreed monthly payments, the car belongs to you once you make an 'option to purchase' fee.

However, Personal Contract Hire (PCH) is a finance type that has become increasingly popular in recent years, and in this article, we break down exactly what it is and why it could be a good option for you.

What is Personal Contract Hire?

Personal Contract Hire (PCH) is ideal for those wanting a new car but don't necessarily want to purchase or own it outright themselves at the end of the contract.

It isn't too dissimilar from other finance types, including PCP and HP; the main difference is that with both agreement types, you either own or have the option to own the car at the end of the deal.

Like any other type of car finance, you'll generally put down an initial deposit followed by fixed monthly payments for an agreed length of time - typically 12-60 months - depending on the options available.

Whom is Personal Contract Hire for?

PCH is for individuals rather than businesses. It's great for people that know they want or need a new car but don't want the commitment of owning it when the contract gets paid off.

If you like the flexibility of switching cars every few years, this is perfect for you, as you'll always have the most up-to-date motor while having no obligation to sort it yourself at the end of the deal.

PCH deals are typically only available when buying a brand-new car, so if you were looking for a used vehicle, one of the other finance types, such as PCP or HP, would likely be preferred.

What are the pros of Personal Contract Hire?

One of the best benefits of having a PCH deal is that the monthly payments are generally lower than other car finance agreement types. It's because you are not paying towards owning it at the end, merely leasing it for a fixed period.

When you enter the agreement, you know there is zero chance of owning it at the end, so you can hand it back without paying a penny more or worrying about anything extra.

Of course, that is on you to keep the vehicle in good condition with only general wear and tear.

Like other finance types, you can include your annual servicing plan in your fixed monthly payments, plus any other maintenance required on the paintwork or alloys. 

What are the cons of Personal Contract Hire?

The only real con is if you drive your car for four years and become attached to it, you sadly have to hand it back as there is no chance of ownership. That said, you can get the latest model and start the process again, so it's not the end of the world.

Like other finance agreements, you will include and agree to a fixed annual mileage limit, and if you exceed it, you will have a fee to pay per mile that you go over.

However, if you think you will exceed it in advance, you could call and ask to increase your cap; this would also mean increasing your monthly payments, so it's worth researching what is more favourable cost-wise.

Can I cancel my Personal Contract Hire agreement before it ends?

While getting out of your PCH deal before it ends is possible, it's a lot harder to do than if you were in a PCP or HP. The reason for that is in the latter two agreements, you will have voluntary termination clauses within your contract and the ability to obtain your early settlement figure and part-exchange if you so wish. 

If you can't afford the monthly payments anymore, you could reach out to your lender and find out what options are available to you. It is generally the discretion of the lender as to whether you could exit your deal early.

Deciding that you want to cancel and, therefore, halting your monthly repayments is a big no-no, though. Missing payments will have a big - and negative - impact on your credit score, so always speak to your lender before making such decisions.

What happens at the end of a Personal Contract Hire contract?

At the end of your PCH deal, you will hand the car back to the lender and walk away without paying another penny, provided the vehicle is in good condition and only has general wear and tear.

As long as you've not exceeded your mileage cap, it is that easy. You can then shop around to see what vehicle you'd like as part of your next PCH deal, or you can buy a car outright or get into a different car finance agreement.

If you bring the car back and it is damaged, or you've exceeded your mileage allowance, you will likely be faced with extras to pay. Review your contract and let your lender know as soon as anything happens so you're not shocked when you drop your car off at the end.