A Personal Contract Hire (PCH) agreement is a type of vehicle leasing arrangement that is primarily designed for individuals. It allows you to drive a car for a fixed period by making regular payments, without the intention of owning the vehicle at the end of the agreement.
Key Features of a Personal Contract Hire Agreement:
- Lease Period: A PCH agreement involves a fixed lease term, typically ranging from 2 to 5 years. During this period, you are essentially renting the vehicle from the leasing company.
- Fixed Monthly Payments: You make fixed monthly payments for the duration of the lease term. These payments cover the cost of vehicle use, including depreciation, interest, and any additional services, depending on the agreement.
- No Ownership: Unlike other financing options, a PCH agreement does not provide the option to purchase the vehicle at the end of the lease term. You return the vehicle to the leasing company once the lease period concludes.
- Initial Payment: PCH agreements usually require an initial payment upfront, often equivalent to multiple monthly payments. This initial payment affects the monthly payment amount and total cost of the lease.
- Mileage Limits: PCH agreements typically include mileage limits that can be set by the customer initially. Exceeding these limits will result in additional excess mileage charges. The charges for excess mileage are outlined within the vehicle quotation and on the finance agreement.
- Excess Wear and Tear: You are responsible for maintaining the vehicle in good condition and returning it with reasonable wear and tear. Excessive wear and damage can lead to additional charges. Most financing companies abide by the BVRLA Fear Wear & Tear guide.
- No Resale Risks: Since you don’t own the vehicle, you don’t have to worry about the vehicle’s future resale value or fluctuations in the used car market.
- Maintenance Packages: Some PCH agreements offer optional maintenance packages that cover routine servicing, tyres, and other maintenance costs . These packages can provide added convenience and predictability. There are variations of coverage for maintenance agreements with various financing providers.
- End-of-Lease Flexibility: At the end of the lease term, you can return the vehicle and either choose a new lease or explore other options. This provides flexibility to adapt to your changing needs and preferences.
- Credit Check: Leasing companies conduct a credit check as part of the application process to assess your creditworthiness and affordability. You may be required to provide supporting information to the finance provider as part of their credit underwriting process.
- Early Termination Considerations: Terminating a PCH agreement early can incur substantial fees. It’s important to understand the costs and terms associated with early termination.
A Personal Contract Hire agreement can offer individuals a convenient way to drive a new vehicle without the long-term commitment of ownership. However, it’s important to carefully review the terms, mileage limits, and costs associated with the agreement before making a decision. Seeking advice from financial and legal experts can help ensure that the agreement aligns with your needs and financial situation.
Concerns of a Personal Contract Hire Agreement:
While a Personal Contract Hire (PCH) agreement can offer convenience and flexibility, there are also potential concerns and drawbacks that should be considered before entering into such an arrangement:
- No Ownership: One of the primary concerns of a PCH agreement is that you do not own the vehicle at any point during the lease term. Unlike other financing options, you won’t have the opportunity to build equity in the vehicle or eventually own it.
- Fixed Mileage Limits: PCH agreements often come with strict mileage limits. Exceeding these limits can result in additional charges, and if you drive significantly more than anticipated, a PCH might not be cost-effective. It is important to ensure the mileage set is as accurate as possible.
- Excess Wear and Tear Charges: While some wear and tear is expected, excessive damage to the vehicle beyond normal use could lead to additional charges when you return the vehicle at the end of the lease term.
- Early Termination Costs: Terminating a PCH agreement before the end of the lease term can be costly. You may be required to pay up to 50% the remaining lease payments, additional fees, and possibly other charges.
- Limited Modification Options: Since you do not own the vehicle, you may have limitations on making modifications or personalizing the vehicle to your preferences.
- Credit Check and Eligibility: Leasing companies typically conduct credit checks as part of the application process. If your credit history is not strong and you are unable to display affordability for the lease, you might face higher interest rates or even rejection of the application.
- No Equity Build-Up: Unlike financing or purchasing a vehicle, a PCH agreement does not allow you to build equity or an asset that can be used in the future.
- Limited Flexibility: While PCH agreements offer flexibility at the end of the lease term, you might feel limited in terms of customising the agreement or vehicle during the lease period.
- Long-Term Costs: While the monthly payments may be lower than other financing options, the cumulative cost of multiple PCH agreements over the years could potentially be higher than other forms of ownership.
- End-of-Lease Decision: Deciding what to do at the end of the lease term, such as selecting a new lease, buying a vehicle, or exploring other options, requires careful consideration and planning.
Before entering into a Personal Contract Hire agreement for a vehicle, it’s essential to carefully review the terms, understand the potential costs, and consider the long-term implications for your financial situation and driving needs. Seeking advice from financial and automotive experts can help you make an informed decision that aligns with your preferences and circumstances.
Within New Vehicle Solutions Limited there are a number of finance options we are able to provide. Based on our discussions and your responses to our questions we will have narrowed down this selection to the one that may be most appropriate given your personal circumstances and requirements. We do however believe it is important that in making the decision you are aware of all finance options we have available (some of which may not be applicable in your particular circumstances) and have relevant information on the options available. Further information on the types of finance options we are able to offer can be obtained from organisations such as the Finance and Leasing Association www.FLA.org.uk or the Money Advice Service www.moneyadviceservice.org.uk. Details of alternative finance options and their explanations will be provided to you as part of our Initial Disclosure Terms of Business document.
New Vehicle Solutions, Tremains Road, Bridgend, South Wales, CF311TZ
Company Registration Number: 8572112 – VAT Number: 166595858
New Vehicle Solutions Ltd is authorised and regulated by the Financial Conduct Authority, our firm reference number for consumer credit is 685872 New Vehicle Solutions Ltd is an Appointed Representative of AutoProtect (MBI) Limited which is authorised and regulated by the Financial Conduct Authority for Insurance Mediation, their reference number is 312143.
We are a credit broker and not a lender.
We are permitted to conduct Credit Brokering, Debt-Adjusting and Debt-Counselling in connection with the whole or partial settlement of credit agreements for vehicle finance and consumer hire agreements.
New Vehicle Solutions Limited does not and will not charge any fees for providing any Consumer Credit services.
Some of our lenders may charge administration fee’s to set up your agreement.
Whichever lender we introduce you to, we will typically receive commission from them (either a fixed fee or a fixed percentage of the amount you borrow). The lenders we work with could pay commission at different rates. However, the amount of commission that we receive from a lender does not influence the amount that you pay to that lender under your credit agreement. Any renumeration amounts can be requested by emailing [email protected] prior to the conclusion of the transaction. Our aim is to secure finance for you at the lowest interest rate you are eligible for from our panel of lenders.
Last Updated: 01/08/2024