Personal Contract Hire (PCH) one of the most common types of leasing options where you are effectively renting a brand new car for a fixed term of years with an agreed mileage limit. In most cases there is no option to buy the car, you simply hand the car and the keys back to the finance company at the end of the contract. This leaves you free to take out another agreement on your next car if you so choose.
Your payments are effectively covering the cars depreciation.Essentially, all you have to worry about is comprehensive car insurance, tyres, maintenance and putting fuel in the tank. Your contact hire payments will be determined by a number of factors:
- The retail price of the car – this is the price you would have to pay for the vehicle if you were to own it outright.
- Residual value of the car – this is its estimated worth at the end of the contract taking into account depreciation, mileage, and condition. You then pay the difference between the two figures in monthly instalments. So the higher the residual value of the car, the lower your payments will be.
While you’re running the car, you’re responsible for its upkeep. On the plus side, the deposit is low as are the fixed monthly repayments and you can negate the impact of repair bills by including a maintenance element into the agreement. You’re under no obligation to get a maintenance agreement from the dealership you bought the car from. In fact, it’s illegal for a dealer to deny your warranty coverage simply because you had routine maintenance or repairs performed by someone else.
Cars that hold their value well are a good PCH option because the difference in their new and three year old values will be smaller so you will repay a lower amount whilst cars that plummet in value will see you pay more.
Is PCH for you? You should probably go for PCH if you can say YES to one or more of the following:
- You do not have to travel varied distances, so it’s not difficult to estimate your mileage.
- You don’t want to own the car or suffer its depreciation.
- You like being able to drive the latest car every few years.
- You like the idea of driving better cars than you could normally afford.
- You don’t mind looking after cars.