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Car finance explained: what is PCH/Leasing?

  • PCH effectively works like long-term car rental
  • Hire a car for the contract term and then hand it back
  • Unlike PCP there is no option to buy the car outright
  • PCH effectively works like long-term car rental
  • Hire a car for the contract term and then hand it back
  • Unlike PCP there is no option to buy the car outright

When it comes to car finance it’s PCP – Personal Contract Purchase – that makes up most of the market. However, with many drivers choosing to swap their car for a new one at the end of the contract rather than buy it outright, PCH – Personal Contract Hire – leasing options are also worth considering.

As with PCP offerings, PCH involves an initial deposit followed by a series of monthly payments, letting you rent the car for the duration of the contract. Come to the end of the term and unlike PCP you don’t have any choice to make – you simply hand the car back and start again.

Who does PCH work for?

With fixed monthly costs – and often the option to bundle in servicing and maintenance bills – PCH is ideal for people who like the idea of changing their cars regularly and don’t want to buy it outright. Meanwhile, the cost of road tax is included in the monthly payments.

Choose a PCH deal and you can drive a new car without being tied into a three- or four-year contract – though a number of PCP deals now offer the ability to sign up for shorter-term contracts too.

As there is no option to buy the car at the end of the scheme, PCH only suits those who plan to move onto another finance scheme afterwards and have the funds to cover a deposit – or pay cash for their next car.

Who does PCH not work for?

If you want the chance to buy a car through finance – but remain able to hand it back if you don’t gel with it – you’ll need to look at PCP instead, as this set-up lets you make the decision whether to return the car or buy it outright at the end of the contract.

Furthermore, as you have to return the car to the finance company at the end of a PCH deal – because you never own it – you will have to abide by mileage and condition rules (as with PCP deals where you don’t buy the car). Therefore, if you damage the car or exceed the agreed mileage limit, you can expect to be stung with additional charges.

How do the costs stack up?

While there are some great-value PCH offers available, leasing a car typically costs more per month than PCP alternatives. This means that even if you are certain that you don’t want to buy the car, opting for a PCP offer could be better value than going down the PCH route. 

Additionally, packaged PCP deals are available – including everything from road tax and insurance to servicing in the monthly cost – and many manufacturers also offer list price discounts and zero-percent APR. 

These incentives mean that PCP deals can weigh in at less than the list price if you buy the car at the end – and provide all the same convenience as PCH options. Consequently, PCP offers can be the best-value way to drive a brand-new car if you plan to hand it back after a few years.

If you’d rather own your next car, work out how much you can afford to borrow with our finance tool.

Want to find out more about car finance options? Take a look at the articles below:

Car finance: which option is right for you?

What is PCP car finance?

What is Hire Purchase car finance?

Car finance vs getting a loan

How to buy a high-end car for a low-end budget with car finance

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