Personal Contract Hire or Personal Contract Purchase?

Planning to lease a new car? With low APR interest rates, it is usually wise to lease a car not buy it outright, even if you have the free money. Most financial consultants would advise you to invest that money somewhere, meaning if all goes well you are likely to have more money in your pockets in the end with paying monthly payments on your car, rather than buying it out with the savings you have.

Basically there are two ways you can lease a car as a private person. The first one is personal contract hire (PCH) and the second one is personal contract purchase (PCP).

There really is no right or wrong when it comes to choosing between PCH and PCP.. You need to consider your own lifestyle, like how often you would like to have a new vehicle in your garage, yearly mileage and personal freedom.

Personal Contract Hire applies to individuals and the main difference is that you can drive a car for an agreed period of time and the actual owner is the leasing company. You make your monthly payments and once the contract is finished you return the car and can choose a new car and sign up for a new contract. There are no obligations and you can just walk away once the contract is finished.

Some of the cons with the personal contract hire include the need for a fully comprehensive car insurance deal as the car is not yours. At times there can be possible end of contract charges with charges also if you go over the mileage limit. Fair wear and tear policy also applies, so it is important to keep the car in good condition.

Now coming to the personal contract purchase (PCP) it is quite similar, low monthly payments, financial penalties for excess mileage and damage to the car. So with both deals make sure you actually know your expected mileage, that’s something many people find as a surprise, when they come very close or go over the agreed mileage in the contract.

A big difference with PCP agreement, is that there is an opportunity to buy the vehicle at the end of the contract. That means you need, depending on the price of the car, a final payment, also known as the balloon payment to make the vehicle yours.

With PCP you are usually guaranteed to have a vehicle with more value, than the final payment, meaning you can use it as a deposit for your next PCP contract or buy it out and find the time to sell it yourself with the potential to make some extra money.


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