Personal Contract Hire Fact Sheet

Personal Contract Hire

What is Personal Contract Hire?
Personal Contract Hire, also known as PCH, is a method of financing new vehicles, the target market being individuals over 18, with a valid UK driving licence. Individuals will need to be able to demonstrate affordability and have good credit history. PCH is a leasing agreement & essentially, you are renting the vehicle for a fixed term & with certain contracted criteria, such as annual mileage.
This method of financing is popular with drivers that like to upgrade their vehicles every few years and value the benefits of fixed monthly motoring costs. It also avoids the hefty financial commitment of purchasing vehicles and helps with maintaining an efficient and cost-effective business fleet.

How Does It Work?
A finance company will purchase the vehicle (and be the registered owner of the vehicle), all vehicles are to UK specification, new & supplied through UK franchised dealers. The finance company, in turn, will lease the vehicle to an individual for a fixed term, with an agreed annual mileage, at a fixed monthly cost.
Standard terms for leasing are between 2 & 5 years, whilst most businesses will opt for a 2, 3, 4 or 5 year lease, some funders do offer any term between 2 & 5 years, so you could opt for a 30 or 42 month lease as examples. The monthly rentals are inclusive of VAT, and are based on the original cost of the vehicle, the impact the agreed mileage has on the value of the vehicle & an allowance for the depreciation in the value of the vehicle.

What’s included in the lease?
Your agreed monthly contract rental covers the cost of use of the vehicle, your road fund licence, or RFL, is also included in the cost of the lease. If you have opted for a funder-maintained lease, the costs of all routine servicing & maintenance, as well as tyre replacement is also included in the cost of the lease. If you have opted for a customer- maintained contract, you will also be financially responsible for all routine servicing & maintenance costs, as well as tyre replacement. Insurance is not included in the cost of the lease, although there is an insured product available in the market.

What happens at the end of the lease?
At the end of the agreement, you return the vehicle to the leasing company & are free to lease a brand-new vehicle of your choice.
If you wish to keep the vehicle for longer, there might be an option to extend the contract either formally for an agreed fixed period, usually 6 or 12 months, or on an informal basis, where the contract rolls over on a day-to-day basis, until you are ready to hand back. In either scenario, the cost of the contract may change. Some leasing companies also offer options to purchase vehicles, although this is not always the case.

What’s the role of a broker in all this?
Many businesses will utilise the services of a broker when searching for a new vehicle & contract. A broker may have access to multiple leasing companies special offers and rates and should be able to offer you the most competitive contract hire rates available, these are often better terms than an individual business is able to access directly with manufacturers or dealers.
The broker will be able to offer you quotes on every make & model and be able to assist you in finding the most suitable vehicle and funding method for your business.
The broker will take you through the funding process and arrange the credit required to purchase the vehicle, They will also source the vehicle with the best discounts available and guide you through the process from quote to delivery stage.
Once the vehicle has been delivered, most brokers will also assist with any mid-term contract requirements, and help with end of contract needs, such as returning vehicles or arranging extensions.

What are the benefits of Personal Contract Hire?
Fixed low monthly rentals – an economical way to source a brand new vehicle.
Ability to change annual mileage mid contract if your circumstances change – this is usually possible if the contract has been running for more than 6 months and has 6 months or more left to run.
Choice of contract length – 2 to 5 years with some funders allowing any term within 2 to 5 years, such as 30 or 42 months.
Payment profile choices – you can decide how small or large you make your initial rental, this could be 3 in advance or up to 12, whatever payment profile you decide upon, the total payable will be about the same across the duration of the contract.
Optional maintenance packages – spread the cost of servicing & tyres across the duration of the contract – avoids large one-off bills.
No depreciation risks – the leasing company are taking all the residual risk, regardless of what is happening to the value of vehicles, your rental remains the same for the duration of the contract (unless there is a tax change such as RFL or VAT).

Are there any downsides to Personal Contract Hire?
Early termination fees – as the contract term is fixed, there may be fees if you need to terminate the contact early. Whilst these do vary depending on the leasing company, the cost would be as much as 100% of the remaining rentals. For general guidance, the early termination costs are often 50% of the remaining rentals outstanding.
Excess mileage charges – these may apply if you exceed the contract mileage and these will be payable in one hit at the end of the agreement if you don’t reschedule the mileage to cover.
You won’t own the car – this is a rental and your monthly charges do not contribute towards you owning the vehicle, at the end of the contract, the leasing company will collect & sell the vehicle.
Damage charges – if the vehicle is returned with excessive damage, outside of the BVRLA fair wear & tear guide (available upon request), you will be charged. This might include dents, scratches, or damaged upholstery.

Target Market for Personal Contract Hire:
Private individuals that are permanent UK residents, aged 18 or over that have expressed an interest in leasing a new vehicle for a fixed period & mileage.

Alternative products in the marketplace!
There are other products available, which might be suitable for your needs & purposes, it is important to make you aware of these, so we have included some alternative products, with some basic details of what they are. These are not necessarily products that we offer but please get in touch to discuss your requirements further.

Personal Contract Purchase – Also known as PCP, this funding method allows you to spread the cost of the vehicle over an agreed period and will often consist of a deposit, monthly rentals and a final balloon payment.
At the end of the contract, you have the choice of paying the balloon payment, which will mean you now own the vehicle, or the can return the vehicle to the finance company. A fee may also be charged to purchase the vehicle at the end of the agreement & the lender will retain ownership of the vehicle until the final payment has been made. If you do return the vehicle at the end of the agreement, excess mileage and damage charges may apply. Road Fund licence is only included for the first year & PCP agreements do not have the option to include servicing, maintenance, and tyre costs. You will be responsible for all servicing & repair costs of the vehicle for the duration of the finance agreement.
 
Hire Purchase – Also known as HP, this is a funding method used to buy a new or used vehicle. You would normally expect to pay a deposit and thereafter the value of the vehicle in full in equal monthly instalments, for the duration of the agreed loan period. The lender will retain ownership of the vehicle until the final payment has been made.
There is no option to return the vehicle during or at the end of the agreement and payment of the vehicle must be made in full by the end of the agreement.
. Road Fund licence is only included for the first year & HP agreements do not have the option to include servicing, maintenance, and tyre costs. You will be responsible for all servicing & repair costs of the vehicle for the duration of the finance agreement.