Everything you need to know about personal contract hire
If you’re looking to lease a car, then PCH could be your best option. Our guide explains how it works, the pros and cons and the alternatives
Key takeaways
Car leasing, also known as personal contract hire (PCH), offers a way to drive a new car without the upfront cost of ownership
Pay an initial deposit followed by fixed monthly payments for typically 2-4 years
Credit history, personal information, proof of address, employment details, and income will be checked by the leasing company
Be sure to consider price, deposit, lease length, and terms
What is car leasing?
Car leasing, or personal contract hire (PCH), is akin to a long-term rental. You get to drive a new car without the hefty price tag of ownership. The process is straightforward: you pay an initial deposit followed by fixed monthly payments over the course of the lease, usually spanning two to four years. At the end of the agreement, you simply return the car to the leasing company, avoiding the hassle of resale and the worry of depreciation.
The initial deposit often covers one, three, six, or nine months' worth of the car's lease cost. The higher the initial payment, the lower the remaining monthly payments will be.
How personal contract hire works
When you lease a car, you're essentially paying for its depreciation during your term of use, along with some additional costs to cover the leasing company's overheads. The initial payment and subsequent monthly fees are influenced by various factors, including the length of the contract and your annual mileage, with specific mileage ranges provided (8,000 to 30,000 miles). It's important to note that insurance for the car will not usually be included with a car lease deal, unless it’s advertised as being a ‘Total Care’ agreement. The leasing funder which owns the car will require you to get fully comprehensive cover to ensure the vehicle is fully protected. Optional maintenance packages are available to cover the cost of fixing wear and tear issues, and all leased cars are brand-new and come with the full manufacturer’s warranty.
Required details for leasing
Before the keys are in your hand, the leasing company will perform a credit check. You'll need to provide detailed personal information such as photo ID, proof of address, bank details, employment details, and information about your monthly income to ensure you can keep up with the lease payments.
Car Leasing vs. PCP
Understanding the difference between car leasing and personal contract purchase (PCP) is crucial. PCP may give you the option to purchase the vehicle at the end of your term with a final balloon payment. In contrast, car leasing is a pure rental agreement with no ownership option at the end of the lease.
Regular repayments in car leasing
After your initial payment, monthly repayments are made throughout the lease term, which typically lasts between two to four years. These payments are fixed, allowing for easy budgeting and financial planning. A longer lease term can make monthly payments cheaper but may result in paying more overall.
End of the PCH contract
Upon completing your lease term and final payment, you can return the car and potentially enter a new PCH agreement for a different vehicle, keeping your driving experience fresh and updated.
Pros and cons of leasing a car
As with other forms of car finance, such as hire purchase (HP) and personal contract purchase (PCP), there are pros and cons to personal contract hire. Here's a quick rundown to consider:
Pros:
Lower upfront costs compared to buying
Potentially more affordable than HP or PCP
Fixed monthly costs for easy budgeting
Flexible terms to suit your needs
No obligations at lease end, like selling the vehicle
Cons:
You never own the car
Can have expensive monthly payments
Possible charges for excess mileage and damage
Penalties for missed payments or early termination
Choosing the best car leasing deal
When selecting a car leasing deal, consider the vehicle's price and what you can afford. Think about the deposit amount, lease length, and terms such as mileage limits and maintenance packages. With leasing, you’re able to drive cars from a number of popular car manufacturers. Through our partner Moneyshake, you can compare car leasing deals from well-known brands such as Audi, BMW, Mercedes Benz, and many more.
Alternatives to personal contract hire
If you're not sure about leasing, there are other options to consider:
Car loan: Spread the cost of buying a car with an unsecured loan, owning the car outright once it's paid off.
Personal contract purchase (PCP): Pay an upfront deposit and monthly payments with an option to buy the car at the end of the term.
Hire purchase (HP): Pay for the car in instalments and own it after the last payment, without a balloon payment.
Credit cards: Purchase a car or part of it on a credit card, ideally with an interest-free period or by transferring the balance to an interest-free card.
Other Useful Guides
Looking to find out more about car finance? We have a range of detailed guides to help with your decision...
How to find the best car leasing deals
Compare car leasing with MoneySuperMarket
Ready to find your perfect lease? Compare car leasing deals with MoneySuperMarket, in partnership with Moneyshake. Enter your personal details and car preferences to uncover deals tailored to you. And if you're considering a car loan, MoneySuperMarket has you covered there too.
Author
Victoria Russell
General Manager - Commercial
Vikki has worked across financial services for over 20years, and for the last 15 years, created and nurtured a career within MoneySuperMarket Group, leading to her current role as General Manager for...
