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Personal Contract Hire (PCH) Explained

Your guide to Personal Contract Hire (also known as PCH) finance

What is PCH?

Personal Contract Hire is essentially a long-term version of renting a car. It’s a great car finance choice if you don’t want to keep the car at the end of the agreement, allowing you to drive a new car every few years.

How PCH works

You pay an initial payment (also referred to as an 'Initial rental') at the start of the agreement

Throughout the agreed term you pay a fixed monthly payment

At the end of the agreement you give the car back & can either start a new agreement with a new car, or simply walk away.

Benefits of PCH

  • Fixed monthly payments
  • Road tax - will be included for the duration of your agreement
  • Resale values - as you never own the car, you won't have to worry about the resale value

Things to consider with PCH finance

  • Owning the car - this type of finance means you'll never own the car
  • Mileage charges - if you go over the agreed amount
  • Damage charges - when you hand the car back, the condition will be checked over
  • Excessive early termination charges

Not wanting to commit to one car?

A big advantage of this type of car finance is that if you are someone who doesn’t want to commit to a car, then this is perfect for you. You only have the car for the duration of the contract, giving it back at the end. But, this can also be a disadvantage if you grow to like the car over the hire period, as you can’t keep it at the end.

Not bothered about owning your car?

If you never want to own the car, and you know this from the beginning, then you might want to consider personal contract hire instead of the other options we have talked about. If you’re not planning to buy the car at the end of a PCP, then PCH could turn out to be the cheaper option for you.

Mileage Restrictions

Once you have the car, you can use it as long as you are sticking to your agreed mileage. If you do happen to go over this, then you will be charged for as much as you go over. However, costs such as car tax are included, so you’re only going to have to pay for the fuel that you are using. Your contract should allow for fair wear and tear, but anything beyond this could mean that you face extra charges. To avoid this, just keep it in good condition and watch what you’re doing with it. Then, at the end of the agreement, you return the car. It really is as simple as that.

Check your contract carefully

Just make sure that you check your contract for the full list of terms and conditions. This way, you know what can induce more charges, what is expected from you, and the date that the car needs to be returned.

Simple Car Finance

A hire purchase is the simplest type of car finance that you can take out. To sum it up, you will pay a deposit, usually around 10%, and then you make fixed monthly payments over an agreed period of time. So, with hire purchase, the car isn’t going to be yours until after you have made the final payment.

Loan secured against your car

What this means, though, is that if you do miss a payment, you could face losing the car as the loan was originally secured against the vehicle. Also, the hire purchase agreements are set up by the dealer, but you can go to a broker to have this arranged if you would prefer. As such, if you’re going to be purchasing a used car, you want to look at what you’re going to be paying for this.

Fixed Monthly Amount

One of the best things about hire purchase is that you are paying a fixed amount monthly, so you know that the payments won’t increase or decrease. This gives you a level of security and allows you to budget it into your calculations without much hassle. You also have certain consumer rights here, which means that once you have paid a third of the total amount that you owe to the lender, they are not going to be able to repossess your vehicle without a court order. While this doesn’t mean that you should relax on making your payments, it does help give you that extra security.

You don't own the car straight away

The bad side of a hire purchase, though, is that you don’t own the car until the end of the agreed period. As such, you’ve got to be careful that all payments are being made on time. You also cannot sell the car if you want to. The loan was taken out against the car, and therefore you are going to have to complete the payments before you own the car, and can then sell it on.