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Guide to car leasing and personal contract hire

  • Pros: generally the cheapest monthly payments for a new car, simple accounting for business users, flexible repayment periods, servicing costs are included
  • Cons: more difficult to end or change cars early than with HP or PCP, no option to keep car at end, you never own the car, you're charged if you exceed the pre-agreed mileage limit

A personal contract hire (shortened to PCH) or personal leasing is a long-term rental contract that’s becoming increasingly popular, and is currently the choice of 12 per cent of finance customers. Having decided how long you want to keep the car for and how many miles you will cover in it, you’re usually required to make an initial payment, and then fixed monthly rental payments for the duration of the contract. At the end of the deal, you’ll need to return the car, with no option to purchase. Unlike HP and PCP, leasing repayments are tax deductible for businesses. Essentially you can think of a PCH as a long-term rental agreement, as it works in the same way, but is cheaper because it lasts for a longer period.

That time period is commonly two to three years, while an annual mileage or overall mileage limit will be set for the car at the beginning of the contract, too. If you exceed this mileage, the dealer will take the opportunity to penalise you on a pence-per-mile basis once you've come to the end of the PCH agreement, just like a PCP.

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Another similarity between PCH and PCP is that both have an initial deposit to pay. After that, they both have monthly payments to keep up, but unlike a PCP deal, there's no option to buy the car at the end of the PCH term, and this will be made clear when you sign on the dotted line at the start – it's even worded in the small print on ads. While you're not the registered keeper of the car at any time while you own it, it does mean there's no balloon payment to worry about at the end of the contract.

Upon reaching the end of the lease, there is usually the option to take out another lease instead of simply handing the car back. During your time with the car, you are responsible for its upkeep, but servicing, maintenance and breakdown assistance are regularly incorporated into the leasing package with the dealer – helping to keep the cost of motoring predictable.

Don't forget you can cancel your order if you're a 'regulated' customer, you can also change to personal contract purchase within 14 days of the original contract agreement in most instances.

Because these rental agreements aren't working towards you taking ownership of the car, they tend to be cheaper. They also factor out the cost of depreciation, which is so often the major sting in the tail of new car ownership.

Click the links below or on the top left of this page to get full guides on each of the key car finance options…

Visit our sister site BuyaCar.co.uk for a wide range of leasing deals

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