Personal Contract Hire

US oil tycoon J. Paul Getty is credited with coining the phrase: “If it appreciates buy it, if it depreciates lease it.”

Few assets depreciate at the speed of a new car. Theoretically, it starts losing value the moment you turn on the ignition and drive away. This is where leasing, or Personal Contract Hire (PCH), comes in handy.

This guide will explain how it works and who it’s right for.

What is Personal Contract Hire?

Personal Contract Hire is essentially the same as regular Contract Hire, but it applies exclusively to private individuals. It is the most common form of car leasing and you’ll find that when most people refer to the term ‘car leasing’ they are actually talking about Personal Contract Hire.

With a personal contract hire agreement you take control of a car for a contractual period, usually referred to as the ‘lease period’. Though the car is in your possession, it is not actually yours to own. Instead, you make fixed monthly payments to a leasing company for the duration of the contract. When the contract expires you simply return the car to the leasing company or take out a new lease. As a result you never have to worry about resale values of the car. You never own it, so you can simply return the keys and walk away.

man-people-hand-driving-6097

Volkswagen Golf

1.6 TDI SE [Nav] 5dr DSG

  • Profile:
  • 9+35 8k Miles p/a
  • Mileage:
  • 8k

£195.00

Per Month, INC VAT

£2,115.00 Initial Payment

Personal Leasing Deal by: V4B Ltd

How does PCH work?

PCH is effectively a long-term car rental. Many people think it’s only available to businesses, but it’s not.

With a lease agreement you effectively agree to hire a vehicle for a set period of time based on a pre-agreed annual mileage. There is an initial rental (usually three, six or nine times the monthly rental), followed by monthly rentals spread over the length of the agreement. The more you put down up front, the cheaper the monthly payments will be, and vice versa.

It’s important to understand how your payments are determined. The leasing company will work out the ‘residual value’ of the vehicle – that is its value at the end of the contractual period once depreciation is taken into account. This is why the company will ask you to stick to a strict mileage limit while you drive the car.

To determine your payments, the company will deduct the estimated residual value from the retail price of the car, leaving you pay the difference in monthly instalments.

At the end of the contract, you simply return the vehicle in an agreed state with an agreed mileage.

How does PCH work?

What are the pros and cons of Personal Contract Hire?

There are many pros to personal contract hire, including:

  • Fixed prices – You can lease both new and used cars at a fixed monthly price and not have to worry about interest charges. This can help you budget.
  • Low initial payment – Typically three or six monthly payments.
  • Cost effective – The monthly instalments for a PCH agreement will generally be lower than those of a personal loan.
  • Vehicle Exercise Duty (road tax) – This will be included for the duration of the agreement, but always check.
  • Optional maintenance packages – Personal contract hire deals can include maintenance packages so you don’t have to worry about the general upkeep of the vehicle.
  • No depreciation concerns – You don’t have to sell the car at the end of the term so you don’t have to worry about its depreciation.
  • Access to more ‘upmarket’ vehicles – With a personal contract hire deal, you could afford a car that would otherwise be too expensive. As luxury cars tend to depreciate at the slowest rates, these often provide the best personal contract hire deals.

Mercedes-Benz C-Class Coupe 2015 Front Dynamic

There are a few cons to personal contract hire though:

  • Comprehensive car insurance – You will not be able to take out third party car insurance; you’ll need a fully comprehensive deal as the car is not yours.
  • You never own the vehicle.
  • Possible end of contract charges - Fair wear and tear policy will apply, along with a pence per mile charge if you go over the mileage limit.
  • No option to buy – Unlike a PCP agreement, there is no opportunity to buy the vehicle at the end of the contract.

Who is PCH right for?

If you run a business, you should investigate business contract hire as this will include VAT built into monthly payments and additional incentives such as hire rental tax allowances.

For individuals, however, personal contract hire can be ideal depending on your circumstances – just think about how you plan to use the vehicle.

If you travel a lot and your mileage is high, the residual value of the car will drop, increasing your monthly payments. However, personal contract hire gives you fixed monthly payments and you have the option to drive a new car every few years, which is an excellent incentive. So as long as you don’t mind not taking ownership of a vehicle, personal contract hire could be the right solution for you.

Check out the listings at ContractHireAndLeasing.com to compare millions of PCH deals.

Personal Lease Deals

Mercedes-Benz GLE Coupe Gle Diesel Coupe

GLE 350d 4Matic AMG Line 5dr 9G-Tronic

£715.91

Per Month, INC VAT

6+47 10k Miles p/a

£4,594.46 Initial Payment

image: Herts Vehicle Contracts Ltd
Fuel Type: Diesel
Transmission: Automatic
Vehicle Type: Estate
CO2: 187 g/km
Personal Contract Hire
Car Leasing Deal by: 
Herts Vehicle Contracts Ltd

Mazda 3 Hatchback

2.0 SE Nav 5dr Auto

£220.73

Per Month, INC VAT

9+23 8k Miles p/a

£2,286.57 Initial Payment

image: Carleasing-Online
Fuel Type: Petrol
Transmission: Automatic
Vehicle Type: Hatchback
CO2: 129 g/km
Personal Contract Hire
Car Leasing Deal by: 
Carleasing-Online

Audi A5 Coupe

2.0 TFSI SE 2dr

£281.77

Per Month, INC VAT

6+35 8k Miles p/a

£1,690.62 Initial Payment

image: Swansway Audi Crewe
Fuel Type: Petrol
Transmission: Manual
Vehicle Type: Coupe
CO2: 127 g/km
Personal Contract Hire
Car Leasing Deal by: 
Swansway Audi Crewe