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PCP Vs Car Leasing - Which Should You Choose?

There are a few different routes to driving a brand new car without buying outright. And on the face of it a Personal Contract Purchase or ‘PCP’ agreement and a Personal Contract Hire, aka a ‘lease’ or ‘PCH’, are pretty similar. But there are some important and subtle differences - and this guide attempts to highlight the pros and cons of each.

Personal Contract Purchase (PCP) vs Car Lease (PCH)

A lease - or PCH as it’s known in the trade - essentially works like a long-term rental agreement. You choose the length of the agreement, make an ‘initial payment’ to bring the monthly leasing costs down, and simply hand back the keys once the leasing period ends. With a PCP deal you still have fixed monthly payments, but you also have the option to either purchase the car outright at the end of the agreement, or to use the vehicle as part exchange for a new one.


Personal Contract Purchase (PCP)Car Leasing (PCH)
SummaryPCP works like a long-term rental agreement and also gives the opportunity to purchase the vehicle outright via a ‘balloon’ payment at the end of the agreement. Personal Contract Hire, or ‘PCH’, is industry-speak for a lease agreement and it’s more simple than PCP. You choose the length of the contract, set the annual mileage, and hand the keys back at the end of the agreement.
Fixed monthly payments
Smaller deposit or initial payment than hire purchase or personal loan
Lower monthly payments than hire purchase or personal loan
New route into driving a car with an electrified powertrain
Depreciation riskXX
Get to drive a new car with state-of-the-art technology and built-in reliability
Mileage cap
Wear and tear guidelines must be adhered to
Vehicle must be insured and well maintained throughout the agreement period
Road tax provided for entire agreementX
Road tax only provided for first 12 monthsX
Option to own the car at the end of the agreementX
Terminating the agreement early may result in charges
Potential to make profit on vehicle if bought at end of agreement and if worth more than the initial ‘guaranteed future value’ estimate X
Risk of suffering negative equity if there’s a discrepancy between what the vehicle is worth at the time of the settlement, and the amount of finance outstanding on the contractX
Must pay interest on entire value of vehicle, even if not purchasing at end of agreementX

Want to know more about car leasing? Get in touch now with our dedicated leasing consultants on 0118 920 5130 or email us at enquiries@selectcarleasing.co.uk

Advantages Of A Personal Contract Hire (PCH) Car

A ‘Personal Contract Hire’ is another way of describing a lease agreement, and it’s something that comes with some real benefits for motorists, not least the ability to swap cars on a regular, frequent basis and also in selecting a lease vehicle that meets your precise needs at that point in time. 

Key Benefits:

  • You don’t need a huge lump sum of money to purchase a car outright
  • Fixed monthly costs and a lease to suit all budgets, with affordable deals beginning at around £139 per month
  • Road tax is provided for the entire lease period
  • Great way to explore electrified powertrains for the first time
  • Extremely simple process at end of agreement where you just hand the keys back and walk away

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Considerations Of A Personal Contract Hire (PCH) Car

If you’re looking for an agreement that gives you the option to purchase and own the vehicle outright at the end of the contract, a ‘PCH’ lease might not be the right option for you. You might also be someone who doesn’t want to change their car every two or three years, in which case a traditional personal loan might be more appropriate, as opposed to a PCH or PCP agreement. 

Considerations:

  • There’s no option to purchase and own the car outright with PCH
  • ‘Initial payment’ required at beginning of contract to reduce monthly lease fee
  • Annual mileage and ‘fair wear and tear’ guidelines must be adhered to
  • Servicing schedules must be met, though additional servicing package can be purchased for maximum convenience
  • Driver must have fully-comprehensive insurance in place for lease vehicle for entire length of contract


Advantages Of A Personal Contract Purchase (PCP) Car

If you know, right from the outset, that you’ve got your eye on a vehicle you’d ultimately like to purchase and own for a considerable length of time, a PCP agreement might work well for you. With a PCP agreement you’re effectively paying off the depreciation value of the vehicle while it’s in your care, with an optional ‘balloon’ payment required at the end for you to own it outright.

Key benefits:

  • Fixed monthly payments to fit your household budget
  • You get to drive a brand new car with lower monthly fees compared with typical personal loan agreement
  • Option to purchase vehicle at end of agreement, or to use the vehicle as part exchange on a different one
  • If you don’t want to purchase, you can simply hand over the keys and walk away at the end of the contract


Considerations Of A Personal Contract Purchase (PCP) Car

You might not have any intention of purchasing a vehicle at the end of the agreement and you might enjoy swapping cars with ease every two or three years. In which case, a lease is going to be a more sensible option for you than a PCP deal.

Considerations:

  • Road tax is only provided for the first 12 months of any PCP agreement, after which the driver has to pay
  • You have to pay interest on the entire vehicle value, even if you’ve got no intention of ultimately purchasing it
  • Vehicle must be well maintained while annual mileage and ‘fair wear and tear’ guidelines adhered to
  • Risk of suffering negative equity if there’s a shortfall between what the car is worth at any given point and its initial ‘guaranteed future value’ estimate.

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