PCH in Brief
In a nutshell, personal contract hire provides:
- Low monthly costs, even on top-end vehicles.
- Worry-free car usage.
- An upgrade path that means you’re always enjoying a premium car.
- Comprehensive maintenance packages to take the burden of repairs and servicing.
- Support from a dedicated customer support team.
But how does it compare to other car financing options, what are the pros and cons, and exactly how does the process work?
Understanding PCH - A Niche Product for a Growing Market
The way we look at car ownership has changed. Roll back the clock (or odometer) a couple of decades, and the attitude to having a car was quite different to how it is today.
Back then, the idea that you might not actually own your car put you in a very strange place - and you were definitely not keeping up with the Joneses. Cars have always been a status symbol, so the idea that you merely rented your vehicle was seen somewhat negatively.
In today’s world, however, we’re used to a more flexible idea of ownership. Subscription services such as Netflix, Spotify, Audible, and Xbox Game Pass have changed the way we look at film, music, books, and games - and it’s rarer now to find someone with a library of physical media than not.
Plus, with mobile phones forming the core of our technological world, ongoing contracts with built-in upgrades is a business model we’re very comfortable with. So, the simple idea that you can do the same with cars is not quite the oddity it once was.
Not only that, but because of the way PCH deals are calculated, it provides a way for you to get your hands on a brand new, top-end car without having to find tens of thousands of pounds in savings.
The Structure of Personal Contract Hire
Once you understand the basics of PCH, its easy to see how it works:
You Don’t Own the Car (and You Never Will)
PCH is a hire agreement with absolutely no plan for you to own the car at any point. There’s no option to buy as you would get with a personal contract purchase (PCP) deal, and it’s not a loan to get the car in a similar way to hire purchase (HP). The car is owned by the finance company and you give them money each month to rent it.
Because of this, you don’t have to worry about depreciation or the administrative burden of selling it on, and you can just enjoy using the car with the knowledge that when you’re done with it and your contract ends, you hand it back and move on (probably to a newer car as an upgrade).
Monthly Payments Are Easy to Budget For
Once you sign the PCH contract, the price of each monthly payment is set for the term. With most contracts setting a fixed rate, you don’t have to worry about the cost going up if the larger economy is fluctuating - interest rates can rise, but your PCH monthly payment is set in stone.
This is a huge help for your personal budgeting. You know how much you need to pay each month and you can work with that in mind with no surprises.
Most PCH Comes with a Maintenance Contract
We have to say ‘most’ here, because you can choose to have your PCH agreement without a maintenance contract, but that’s unusual.
As this is part of the set monthly payment, that means you know precisely how much having the car is going to cost each month. Compare that to owning a car - if you’re driving along one day and the clutch fails, then out of nowhere you’re footing a bill that can easily top £1,000.
There’s no such fear with a comprehensive maintenance contract.
You Pay an Upfront Payment (Deposit)
With PCH, you will have to pay an upfront payment or deposit at the beginning of the contract. This is calculated as a multiple of the monthly payment, typically three-, six-, or nine-months.
The upfront payment is negotiable, with some providers offering zero-month (no deposit) contracts.
It’s important to understand that if you pay a larger upfront payment, you lower the risk for the finance provider, which is beneficial to you - it means a more flexible assessment of your credit score and affordability, as well as a lower monthly payment (and more cost-effective contract in the long run).
You Do Have to Accept Some Limitations
Nothing is ever all upside. Personal contract hire vehicles do come with some limitations, mainly to do with mileage and where you can take the car.
Your annual mileage will be set at the start of the agreement. Higher mileage restrictions will mean larger monthly payments as you’re effectively driving the car harder and lowering its lifespan.
If you go over your mileage limit, you’ll have to pay a fee for every mile over the limit (this tends to be between 3p per mile and 30p per mile, depending on the type of car and the contract).
If you try to be cheap early on and set a low mileage limit to save on monthly payments, you might find yourself either being unwilling to drive somewhere because of the extra cost, or racking up a large end-of-contract fee.
Finding the balance is essential, though you can always contact the finance company and adjust the deal if you find yourself driving more (or less) than you anticipated.
The second limitation is that you may be prevented from taking the car out of the country. Some PCH deals come with a UK-only clause, while others are happy for the vehicle to be used across the UK and continental EU. Worldwide-usage PCH deals will be more costly.
Insurance is Important!
You’re driving someone else’s car, so you need to have fully comprehensive insurance at all times. Of course, things may happen and the car may become damaged, sometimes beyond repair, or even stolen - in these cases, your insurance will pay the leasing company directly to cover the costs.
This additional insurance, typically paid as a one-off fee at the beginning of the contract, covers any shortfall between the main insurance payout and the remaining costs associated with the PCH should the vehicle’s market value be lower than the PCH contract total.
This can occur, for example, if the car depreciates quicker than expected, resulting in a shortfall. While not mandatory, GAP insurance provides peace of mind for PCH contracts that don’t have similar safeguards built in.
Wear and Tear Must Be Reasonable
If you damage the car beyond what’s considered reasonable, then you will incur end-of-contract fees to cover that additional damage. Personal contract hire agreements will include a very specific description regarding what is considered reasonable wear and tear, so it is easy to understand if you cross the line.
For example, some scuffing and rubbing on the internal upholstery is to be expected and will not result in a fee, but a tear where someone’s shoe caught and ripped the fabric will be charged. Similarly, it’s a good idea to have a rule where children don’t eat and drink in the car - spilled milkshakes and apple cores can cause serious harm!
Payments are Strict
PCH contracts are firm and you have to make sure you can make every monthly payment for the length of the agreement.
As the vehicle belongs outright to the finance provider, they are well within their rights to take back possession of the car if you don’t keep up with payments - and you will likely still be left owing money.
Good Credit is a Must
Because the finance company are effectively handing over a high-value asset (the car) to you with little investment from you, PCH is a higher-risk form of car finance for providers than other forms of car finance (such as hire purchase or personal contract purchase). This means a strong personal credit rating and low debt-to-income ratio are essential.
Note that you can often negotiate for a larger upfront payment if your credit assessment fails only slightly, mitigating the risk and making you a more enticing customer.
Communication is Key
Should you ever have a problem with your car or PCH contract, either with the vehicle itself, or in terms of making payments, it’s essential to contact the leasing provider as soon as possible.
Open and honest communication gives them the chance to help with any issues and find a mutually acceptable solution - remember, you and they are on the same side.
This may be because:
- You are struggling and may miss the next payment.
- The vehicle has become damaged in some way (often minor).
- You have exceeded the mileage restriction.
- You have been caught speeding.
- You want someone else to drive the car.
Remember, the provider is listed as the legal owner of the car, and will be contacted by any third-party should something happen with the car - avoiding communication is likely to lead to complications.
The finance provider’s customer service team is there to help you with any problems that come up during your contract term - don’t be worried to let them know sooner rather than later.
Getting the Best PCH Deals with Clifton Private Finance
If you’re looking for a new car with the lowest PCH rate possible, then come to Clifton Private Finance.
Our car finance team work with trusted car finance providers to get our clients the best rates available in the UK marketplace, alongside specialist help to ensure the application goes as smoothly as can be.
Contact us today and let us help you get on the road with a brand new car as soon as possible.
