Personal Contract Hire (PCH) leasing allows you to drive a new car every few years, with relatively low monthly payments and no worries about the car’s resale value. However, you won’t have the option to buy the car at the end of the arrangement.
What’s in this guide
- How does car leasing work?
- How do I finance a car with Personal Contract Hire (PCH)?
- Restrictions when you lease a car
- The big difference between PCP and PCH: buying and owning the vehicle
- Your rights if you want to cancel a PCH plan
- What to do if you’re getting behind on car finance payments
- Compare car leasing deals
How does car leasing work?
Coronavirus and car payments
Find out more about payment holidays if you’re struggling with car finance payments
Leasing a car is effectively long-term rental – you pay a fixed monthly fee to use the car for an agreed time period and number of miles.
You might need to pass a credit check to secure your agreement. You can check your credit score for free with:
Car leasing credit checks won’t assess your other outgoings, so make sure you can afford the payments. This means you need to make sure the costs are within your budget.
To get out of a PCH deal early you might not be able to just walk away from the agreement. There might be extra costs to pay before you can leave that you hadn’t budgeted for.
This can be a problem if you’re ending the agreement because you can no longer afford the payments.
How do I finance a car with Personal Contract Hire (PCH)?
If you’re looking to hire a car long term and don’t want to buy it, the cheapest option is likely to be using PCH. With a PCH agreement:
- the lease agreement lasts two to five years
- you'll need to undergo a compulsory credit check
- you have to pay around three months’ lease upfront
- you never own the vehicle during the agreement and must hand it back at the end of the term
- monthly payments are normally higher than for equivalent vehicles leased through PCP, but over the entire contract you’ll typically pay less on a PCH
- sometimes you can get a maintenance package that covers things like annual car tax (road tax) or servicing
- there are strict terms and conditions, like limits to the number of miles you can do.
Help with the cost of living
Worrying about money because of rising rents, high energy bills or debt? If so, we're here to help.
Take the first steps to find your way forward with our guides to help you with the cost of living.
How much do I pay a month for a PCH?
Monthly payments are normally higher than if you had leased the car through PCP. This is because you’re leasing on the basis of the full amount of the vehicle and with PCP you’re borrowing part of the value.
However, the total amount you pay over the contract is often less than with a PCP. But every deal is different so make sure you shop around and compare the total cost including running costs.
PCP is similar in many ways, but lets you purchase the car at the end of the agreement.
Top tip
Four out of five people with PCP plans don’t opt to buy the car at the end of their contract (Source: the Finance and Leasing Association). Is it likely you’ll be one of them? If so, leasing a car through Personal Contract Hire (PCH) might work out cheaper for you.
Restrictions when you lease a car
As with all rental agreements, there are some restrictions you need to bear in mind.
- You won’t be able to modify the car in any way – for example, adding a tow-bar – without permission. However, you can ask the leasing company to make modifications before you take it.
- If you exceed the agreed mileage, you’ll have to pay a penalty for the extra miles at the end of the agreement. Typically this is 10p per extra mile and soon adds up, so make sure you estimate your mileage accurately. Understand the cost of going over the mileage. It might be cheaper to opt for a higher mileage agreement than pay penalties.
- You must return the car in ‘good repair and condition’ (taking into account ‘fair wear and tear’). So if, for example, a wing mirror gets broken, you might be charged to cover the cost of putting this damage right.
- If you plan on taking your car abroad, you might need to get written permission from the finance company each time you do so and there might also be a charge.
The big difference between PCP and PCH: buying and owning the vehicle
| Using a PCH | Using a PCP |
|---|---|
|
The total cost of a PCP contract tends to be higher due to deposits and balloon payments. |
You could own the car at the end of a PCP deal, so you’re paying towards owning an asset that you could sell one day. |
|
PCH monthly payments are typically higher. |
PCP monthly payments are typically lower. |
|
You’ll have to make an initial rental payment typically equivalent to six months lease. |
You usually have to pay a deposit of around 10%, but you can pay more. |
|
With PCH, the lender can repossess the car without a court order. |
With PCP, the lender can repossess the car without a court order. But if you’ve paid at least a third of the total amount payable, they can’t repossess it without a court order. |
|
You’re generally tied in for the duration of the contract. |
If you want to end your deal early, you’ll need to have paid at least half of the value of the vehicle. If you haven’t, you’ll have to pay the difference. |
For more details on ‘balloon’ payments and the pros and cons of a PCP deal, read our guide Financing a car with PCP
Your rights if you want to cancel a PCH plan
Ending a PCH early means you might have to pay off the lease costs in full, so think very carefully before cancelling the agreement and find out exactly what these total costs would be.
What to do if you’re getting behind on car finance payments
Return the car
As long as you’ve paid (or can pay) half the cost of the car, you have the right to return it. For a PCH, there can be further charges, so check your agreement.
Talk to the finance company
They might offer to extend the length of the lease, which would lower your monthly payments, or come to some other arrangement to help you out.
Compare car leasing deals
If you’re thinking of leasing a car, remember to look at a few different comparison sites.
Here are some suggestions:
