PERSONAL CONTRACT HIRE
Personal Contract Hire should not get be confused with Personal Contract Purchase (PCP) its becoming one of the most popular ways to run a car with more and more dealers & brokers providing PCH as a solution.
However it is an effective, risk free and affordable way to run a vehicle for 24 – 48 months, lower initial payments often outweigh the positives of a PCP. Plus, you don’t have to worry about the deprecation factor.
On Personal Contract Hire you only pay for the use (rental) of the vehicle and not the total retail value of the vehicle. The longer you keep the vehicle for generally the cheaper it is, although this isn’t always strictly true due to manufacturer incentives.
The payments are worked out based on the duration, the mileage you will be doing and what the car will be worth at the end of the contract. The Residual Value of the vehicle is important as the leasing companies work out your payments against the cost of the vehicle when new, less the ‘RV’
Service packages and maintenance options are an ideal way to ensure you get the benefit of fixed cost motoring for the duration of the personal contract hire. Get a quote at the time as usually there isn’t much difference between the two.
At the end of the contract just hand the car back and start afresh with a new motor. Just remember though, you won’t be able to purchase the vehicle.
How does Personal Contract Hire Work?
Each and every vehicle will work out at a different cost, the monthly figure is based upon what the leasing company purchases the vehicle for and what the vehicle will be worth in 24 – 48 months. This end figure – The Residual Value is calculated from stats based on depreciation, mileage and duration.
Occasionaly premium brands such as BMW, Mercedes, Audi and VW can work our cheaper than the regular Ford’s and Vauxhall’s. This is down to a strong residual value of a vehicle, its less likely to lose too much money over the time frame.
Every vehicle you place on business contract hire is different and sometimes a more expensive brand can work out cheaper than the regular ‘everyday’ brands such as Ford or Vauxhall.
Should I put a larger deposit down to bring the payments down?
Our advice would be no, however its best to sit and work out your finances. As the payments rarely change you won’t save any money by paying a larger deposit. It won’t make any difference on the end game as you have no balloon payment. Therefore our advice to you is to put down the conventional 3 or 6 payments required.
More and more people are falling into the trap with dealers and seeing the headline rate of £119 for example, however generally they are asking for a £3-4k deposit. If it was a PCP it is a different matter, but you are purely renting the vehicle on Personal Contract Hire and therefore gaining no equity in the vehicle.
Positives vs. Negatives
As with everything, there are pro’s and con’s to each and every funding method. We have listed a few below:
- Low Initial Payments – Unlike Hire Purchase or Personal Contract Purchases, the initial payment found on the majority of contract hire agreements usually requires the equivalent to 3 or 6 payments upfront.
- Fixed Motoring – The monthly payment should never change for the duration of the contract, so long as you don’t adjust the mileage parameters. If you really want true fixed cost motoring, you could even add the optional maintenance on to the rental. However, everything else is covered including the Vehicle Excise Duty. All you need to provide is the fuel and the insurance.
- Excess Mileage – Always be upfront about the mileage you will be doing, as it could come and bite you at the end. Excess mileage rates can vary from 6ppm to £3.50ppm, so make sure you tell the truth, even if you think you will save a few quid.
- No option to purchase – You won’t be given the option to purchase the vehicle, this is mainly due to the tax benefits. There are certain companies out there that can purchase the vehicle on your behalf and sell it back to you for a small fee.
- Damage – Standard wear and tear is usually allowed depending on the duration of the contract. Short Term Leasing doesn’t usually have the same standards, so just be careful not to damage the vehicle. Any severe damage and you will get a bill. Should you not have the vehicle repaired to the required standard, you could be landed with a bill to rectify the work you thought you’d saved money on.
- Insurance – You can’t save money here by going for Third Party Cover only. The funder will require fully comprehensive insurance for the duration of the contract.
How do I get Personal Contract Hire Quotes?
Simple, just complete the enquiry form below or on our homepage and we will pass the information through to the most relevant leasing broker.