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personal contract hire

A guide to personal leasing

Personal contract hire is a type of long-term vehicle renting. Our guide explains how it works, the pros and cons and whether it’s the right car finance option for you.

By Tim Heming

Published: 21 July 2021

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If you need to hire a car over a long period you have a choice of options, such as hire purchase (HP) and personal contract purchase (PCP), or you could look to lease a new car through personal contract hire (PCH).

What is personal contract hire?

Personal contract hire is a long-term vehicle leasing agreement, but for an individual rather than a business. It’s a popular way of leasing a vehicle, which typically is a more affordable option than buying a car outright.

Traditionally PCH agreements are associated with businesses needing cars for employees or a fleet of vans for example. But it is possible to get a personal or individual PCH deal.

With PCH you hire a new car for an agreed period – usually between one and four years – and make fixed monthly payments until the lease ends.

Once the contract finishes, you return the car without further obligation, so you don’t have to worry about selling it.

Under the PCH terms your monthly payments are fixed from the outset. Car servicing, maintenance and road tax is often included under the agreement. However, if you exceed the agreed monthly mileage allowance you could be hit with extra charges so this is one to watch. There will also usually be fees and charges if you damage the car or if you want to end the lease early.

Is personal contract hire a good idea?

Deciding whether personal contract hire is right for you comes down to several factors which depend on your needs and financial situation. Things to consider include:

  • Fixed costs: You’ll know what you’re paying every month which can help with budgeting. You typically pay a deposit covering the first eight to 10 months and fixed payments tend to be lower if you take out a longer lease. The cost of servicing can be included within the monthly fixed cost, but this is often optional.
  • Fewer obligations: Because you don't own the car you won't need to sell it at the end of the contract. This avoids the hassle of having to market the vehicle and try to get the best price. You can then decide whether to lease another car under a new PCH or go for another financing option.
  • You won’t own the car: Your payments all go towards hiring the car. Unlike hire purchase or personal contract purchase you won’t have paid for all or part of the car by the end of the hire period. Some PCH companies might give you the option to extend the lease, but you won’t have the option to buy the vehicle.
  • Relative cost: PCH can be cheaper than HP or PCP because you are renting the car not buying it or paying off a share. But because a new car can lose value fast you could end up paying over the odds for leasing the vehicle under the plan.
  • Damage & excess miles:You’ll be charged for excess miles (typically around 5p to 15p per mile), and for any damage and excess wear and tear. It’s usually worth fixing repairs and having the car cleaned before returning it.
  • Keeping up with payments: If you can’t afford the payments, the hire company can terminate the contract and take the car back. If you want to terminate the deal early you may be charged a fee.
  • Car loan:You buy the car with an unsecured loan and then pay back the cost in monthly repayments to your loan provider. This allows you to spread the cost of buying over a few years to make it more affordable. An advantage is there are no extra fees and charges to pay on top of the loan, which you may get with hire purchase or PCP, and you’ll own the car outright.
  • Personal contract purchase (PCP): You spread the price of a car by paying an upfront deposit (typically around 10%) and then monthly payments for a set term, for example three years. At the end of the contract you can make an optional final payment – sometimes known as the ‘balloon payment’ to buy the car outright. A PCP finance agreement generally lasts between 24 and 48 months, and if you choose to make the final payment the car is yours to keep.
  • Hire purchase (HP): You spread the cost of a new car across a series of instalments. Once you've made the last payment you will own the car. There's no need to pay a final large instalment – or balloon payment - as with a PCP agreement.
  • Credit cards: As long as your credit card limit allows and your chosen dealership accepts card payments (some dealerships won’t accept large card payments for a car), you may be able to buy a car – or fund part of the purchase - on a credit card. It’s usually only a good option if you have a credit card with a long interest-free period on purchases or if you switch the balance to an interest-free card. This is because standard card rates can be high.

Can you get personal contract hire on used cars?

Personal contract hire didn’t used to be an option on used cars, but it is becoming more commonplace. Previously, drivers looking to hire a second-hand car often chose hire purchase (HP) or personal contract purchase (PCP) where they can buy the vehicle at the end of the lease period.

What happens at the end of the contract?

When you reach the end of a personal contract hire lease, the car is returned to the hire company. If you want a new vehicle you’ll have to enter into a new lease agreement so this means you’ll have to find a new deal.

If at the end of your PCH contract you’ve driven beyond your agreed mileage, an excess mileage charge will be added. It’s worked out on a ‘pence per mile’ basis and is set at the start of your contract.

If you want to keep your existing vehicle then – subject to approval from the finance provider – you may be able to extend the contract.

Can I get personal contract hire with bad credit?

The PCH hire company will run a credit check on you to assess your credit history and whether you can afford the monthly repayments.

If your credit score is low or you’ve had repayment problems in the past you may not be eligible for personal contract hire to lease a new car. In some cases you may be eligible but be offered less favourable terms – such as higher monthly payments.

It’s a good idea to get a copy of your free credit file and credit score before you apply to check where you stand. There could be ways you could boost your score to improve your chances of getting a good deal.

You may have more success getting a PCH agreement on a used car, because typically these cars are already worth less than new. With a used car the monthly repayments could be lower, making it more affordable. In this instance the hire company may see bad credit applicants as less of a risk.

Is the use of a car on a personal contract hire deal tax deductible?

If you are self-employed with an annual turnover below the VAT threshold, you can claim a proportion of the monthly payments as a business expense.

Concessions are biggest for electric cars but the tax rules can be complicated so it’s wise to seek guidance from an accountant.

What are the alternatives to personal contract hire?

Even if you don’t have the cash to buy a car outright there are other ways to finance a vehicle, such as…

  • Car loan: You buy the car with an unsecured loan and then pay back the cost in monthly repayments to your loan provider. This allows you to spread the cost of buying over a few years to make it more affordable. An advantage is there are no extra fees and charges to pay on top of the loan, which you may get with hire purchase or PCP, and you’ll own the car outright.
  • Personal contract purchase (PCP): You spread the price of a car by paying an upfront deposit (typically around 10%) and then monthly payments for a set term, for example three years. At the end of the contract you can make an optional final payment – sometimes known as the ‘balloon payment’ to buy the car outright. A PCP finance agreement generally lasts between 24 and 48 months, and if you choose to make the final payment the car is yours to keep.
  • Hire purchase (HP): You spread the cost of a new car across a series of instalments. Once you've made the last payment you will own the car. There's no need to pay a final large instalment – or balloon payment - as with a PCP agreement.
  • Credit cards: As long as your credit card limit allows and your chosen dealership accepts card payments (some dealerships won’t accept large card payments for a car), you may be able to buy a car – or fund part of the purchase - on a credit card. It’s usually only a good option if you have a credit card with a long interest-free period on purchases or if you switch the balance to an interest-free card. This is because standard card rates can be high.

Other useful car finance guides

Buying versus leasing

Business car leasing

Car finance explained

Compare other car finance options with us

Finding a car finance deal to suit your needs is simple with MoneySuperMarket.

We don’t feature personal contract hire (PCH) but we offer great options on car loans, personal contract purchase (PCP) and hire purchase (HP) from a broad range of lenders across the market.

It’s quick and easy to search and compare and it won’t harm your credit score as we’ll do a ‘soft search’ to show you your chance of being accepted before you make your final decision.

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