Private Car Leasing

There are many different types of car finance, but one of the most cost-effective is private car leasing.

So what is private car leasing, and how does it work? This guide will put you in the driving seat.

What is private car leasing?

Private car leasing (also known as ‘personal car leasing’) is a form of finance whereby you pay a monthly sum to drive a car over a pre-established period, usually between two and four years, but the car is never actually yours.

Payments are based on the difference between the retail price of the car (what it is worth when the agreement starts) and the residual value (what it is estimated to be worth at the end of the contract period). The less the car depreciates in value, therefore, the lower your payments will be.

Broadly speaking, a private car leasing agreement can be established with one of two methods – personal contract hire (PCH) or personal contract purchase (PCP).

BMW 3 Series 330d xDrive Touring Blue Front Dynamic

Personal Contract Hire (PCH)

Personal contract hire (PCH) is an agreement made between an individual and a car leasing company. The agreement will be to pay fixed monthly payments for the use of a car for a set time period and set mileage. The car is returned to the lease company at the end of the contract.

Personal Contract Purchase (PCP)

Personal contract purchase (PCP), sometimes known as a personal contract plan, is another method of personal car leasing, again using fixed monthly payments over a set period of time and a set mileage. The main difference between PCP and PCH is in the inclusion of an optional final ‘balloon’ payment. The balloon payment allows you to purchase the vehicle at the end of the lease agreement. The value of the balloon payment is determined before you sign the lease agreement and is equivalent to the guaranteed minimum projected value of the car at the end of the contract.

What do PCP and PCH have in common?

While both methods of personal car leasing do have subtle differences, they do also have these benefits in common:

  • Fixed monthly payments.
  • Protection from residual value fluctuations.
  • Ability to drive cars that may not be affordable to buy outright or on Hire Purchase (HP).
  • The option to frequently change your vehicle.
  • Ability to drive a brand new car and benefit from technology advancements in safety, fuel efficiency and comfort.
  • Optional maintenance packages. This will cover any unexpected maintenance costs that arise during the term of the lease.

Fiat 500 2016 Front Dynamic

What are the pros and cons?

Next, we will look at the specific advantages of each personal car leasing option.

Benefits of Personal Contract Hire

  • ‘Road tax’ – Vehicle Excise Duty (often called road tax) is included in PCH agreements for the duration of the lease contract.
  • Disposal is not an issue - the car is returned to the lease company at the end of the lease agreement and there are no concerns about the car's residual value and also no hassle in looking for a buyer.
  • Initial deposit is often lower than PCP.

Drawbacks of Personal Contract Hire

  • Penalties for exceeding mileage restrictions – typically less than 10p per mile.
  • No option to own the vehicle.

Benefits of Personal Contract Purchase

  • Final balloon payment - a pre-arranged sum that will allow you to purchase the car at the end of the lease agreement.
  • For individuals looking to drive and eventually own a car, a PCP deal can be the flexible and affordable way in doing so.

Drawbacks of Personal Contract Purchase

  • Penalties for exceeding mileage restrictions.
  • Fixed sale price means no haggling.
  • You don’t own the vehicle until the balloon payment is made.

Audi TT S 2015 Yellow Front Dynamic

Which method of private car leasing is right for you?

Both PCH and PCP have a lot in common that make them advantageous as methods of car finance – both require only a small initial deposit, there is no risk of residual value loss, you have low-cost fixed motoring costs and you can change your vehicle frequently.

Choosing between the two methods of private car leasing is dependent on your circumstances.

PCP is generally preferred by private motorists who want to drive the car of their choice without risk. If the car lives up to expectations you can complete the purchase at the end of the lease period. If it doesn’t, or something better comes on to the market, you can return it and walk away.

By contrast, PCH is often preferred by customers who want a car that would normally be unreachable in terms of its price. You can make monthly payments to drive a quality car, and then return it and/or upgrade at the end of the lease term.

Whichever method of private car leasing you choose be sure to search from the listings at to compare thousands of deals.