What is Personal Contract Hire (PCH)?

More and more people are choosing personal contract hire (PCH) deals as a way to finance their new car. This process is also often known as leasing. But what does it actually entail, and why could it be the right choice for you?

What is PCH?

The mechanics of PCH and PCP (Finance) deals are very similar. They start with an initial deposit equivalent to a set number of monthly instalments. Then over the course of an agreed period of time monthly instalments are paid. At the conclusion of that term, the vehicle is then returned to the supplying dealership or finance company. The main difference is that PCH offers no option to buy the vehicle at the end of the term. Usually, with PCP deals there is an option of a so-called "balloon payment" which can be paid to secure the car. No such provision exists with PCH deals, when the finance term comes to an end the vehicle goes back. That means PCH should essentially be considered a form of long-term hire.

What are the pros and cons?

As with every finance option, PCH deals come with both pros and cons to consider.

The pros

One main reason for considering a leasing deal is that the monthly payments are generally lower. This is because you're only paying for the use of the vehicle, rather than financing its value or the difference of its depreciation. Depreciation factors into another benefit of leasing, in as much as you won't have to worry about it. You haven't bought the car, so the fact its value has dropped considerably by the end of your term of using it won't impact you. Certain lease deals can include provision for service and maintenance coverage, road tax, and other expenses. This consolidates many of the costs of running a car into one simple place, making budgeting for your vehicle much easier.

The cons

One of the benefits of leasing can also be perceived as one of the downsides depending on your perspective, namely the fact you don't own the car. This means that at the end of your payment term the car simply goes back and you have nothing to show for it. Another potential drawback is that lease deals have tight controls. There will usually be some degree of mileage limit, and you'll incur charges if you go over it. They may also charge you for any damage or faults with the car when it comes to be returned.

Is leasing the right choice?

There's no right or wrong when it comes to leasing, only whether or not it works for your circumstances. If you like the idea of a simplified car ownership experience and you don't mind keeping a close eye on your annual mileage then a lease deal could be ideal. It can also allow you to change your car every few years for a new one without having to worry about selling or losing money on the old one. Remember however that your lease deal is a cost only for the use of the vehicle when your lease deal comes to an end the vehicle will be returned to the dealership and you'll have nothing to show for your expenditure. Leasing works brilliantly for many people who are looking for a way to afford a newer car to drive without the hassle of ownership. If that appeals to you then a leasing deal could be the perfect choice for financing your next new car.