The difference between PCH and PCP

Personal Contract Hire (PCH)

Personal Contract Hire, often known as personal car leasing, involves an agreement where an individual pays fixed monthly payments to use a vehicle for a specified period, typically between 2 to 4 years. At the end of the contract, the individual returns the vehicle to the leasing company without the option to buy it.

Benefits of PCH:

• Fixed Costs: PCH offers predictable monthly payments, aiding in budgeting without concerns about depreciation or unexpected maintenance costs.
• Access to Newer Vehicles: Individuals can drive new cars with the latest features without the burden of ownership or worries about selling the vehicle later.
• Maintenance Packages: Our PCH agreements can include optional maintenance packages, covering routine servicing and repairs, alleviating additional financial burdens.

Risks of PCH:

• No Ownership: Unlike PCP, PCH doesn't offer the opportunity to own the vehicle at the end of the lease. Individuals seeking ownership might find this aspect less appealing.
• Mileage and Condition Restrictions: Exceeding mileage limits or returning the vehicle in poor condition can result in additional charges at the end of the contract.

Personal Contract Purchase (PCP)

Personal Contract Purchase involves monthly payments like PCH but also offers the possibility of purchasing the vehicle at the end of the agreement. Individuals pay an initial deposit, followed by monthly payments, and then decide whether to make a final ‘balloon’ payment to own the car or return it to the finance company.

Benefits of PCP:

• Low Monthly Payments: PCP often offers lower monthly payments compared to traditional financing methods, like HP, or outright purchase.
• Flexibility at the End: Individuals have the flexibility to choose between buying the car by making a final balloon payment (also known as the Guaranteed Minimum Future Value) or returning it to the finance company.
• Potential Equity: If the car's value is higher than the Guaranteed Minimum Future Value at the end of the contract, individuals can use the equity as a deposit for a new vehicle.

Risks of PCP:

• Balloon Payment: Individuals opting to purchase the vehicle need to make a substantial balloon payment at the end of the agreement if they wish to own the vehicle outright, which might require careful financial planning.
• Depreciation Risk: As the vehicle's future value is estimated at the beginning of the contract, market conditions might affect its value, impacting the equity or final purchase decision.

Conclusion

Both PCH and PCP present distinct advantages and potential risks. PCH provides a hassle-free, predictable way of driving newer vehicles without ownership, whereas PCP offers flexibility at the end of the agreement but requires careful financial planning for the balloon payment or trade-in. Evaluating personal preferences, financial circumstances, and long-term goals is essential in choosing between these two car finance options. Consulting with reputable finance providers and understanding the terms and conditions of each arrangement can assist individuals in making an informed decision tailored to their needs.

At The Leasing Guys, we have many years experience in providing all types of finance, so we will be happy to talk you through all available options and work out which will work best for you.