Personal lease / Contract Hire
Personal Contract Hire is simply a long-term rental option that allows you to change your car regularly and have lower monthly payments. It’s one of the most popular and well known ways of leasing a car and means you can avoid gambling on the used car market hoping that your car hasn’t depreciated massively.
A lease is calculated on the difference between the initial purchase price and the residual value of the vehicle. You simply budget a monthly vehicle expense and pay a fixed monthly fee to use the car for an agreed amount of time and mileage. You then have the option of changing your car every two to four years.
At the end of the contracted term you have to return the car, but you have the option to take out a brand new agreement straight away. It is important to note that you may be liable for any damages to the vehicle.
PCH is very accommodating to those who like to change their car on a regular basis or people who travel and use a lot of mileage.
Some PCH deals come with maintenance contracts, which means the car servicing is included as part of the deal. Road tax is also included so you only need to insure and put fuel in the car.
Lease Purchase is similar to PCP in that the leasing company works out an estimated future value for the car based on an estimated depreciation for the end of the contract. This is described as residual value. A typical lease purchase agreement will last two-four years, however most companies allow customers to settle the agreement at any point during this period.
As with PCP you pay a deposit on the car then make monthly payments on the difference between the retail value and the residual value.
The fundamental difference between Lease Purchase and PCP is you already have an agreement in place to buy the car; therefore there is no option to return the car. With PCP you have the option to buy the car or return it at the end of the contract. This means at the end of a lease purchase agreement, the customer must make a final balloon. This can be done through a part exchange, cash or with additional finance.