What Is Contract Hire? (PCH)

Contract Hire, whether for personal use (PCH) or business use (BCH), is a long-term leasing agreement that allows you to rent a new car for a specified period, typically ranging from two to five years. You make fixed monthly payments and return the vehicle at the end of the term. You do not have the option to buy the car when the contract ends.

One of the main benefits of Contract Hire is that it eliminates the risks and worries associated with owning a car. You do not have to deal with depreciation or selling the vehicle. Many contracts also include options for maintenance and servicing, and road tax is typically covered for the duration of the lease.

Contract Hire is ideal for those who want to drive a brand new car with predictable costs, without the responsibility of ownership.

Pros and Cons of PCH

The main advantages of Contract Hire include lower monthly payments compared to other forms of finance, no concern over the car’s future value, and the ability to change vehicles every few years easily. You can also enjoy hassle-free motoring with maintenance options included.

There are also a few points to consider. You will need to agree to a mileage limit at the start of the lease; exceeding this limit will incur additional charges. There may also be charges for any damage beyond fair wear and tear. Finally, if you wish to terminate the contract early, you may incur early termination fees.

Pros and Cons of PCP

PCP gives you the freedom to decide what happens at the end of your contract. You can choose to buy the car or return it. Monthly payments are typically low, and if the car’s market value is higher than the guaranteed future value, you can use the equity towards your next car.

However, PCP agreements also come with mileage limits and condition requirements. If you want to buy the car, you need to pay the large final balloon payment. If you exceed mileage or return the car with damage, extra costs may apply.

What Is PCP?

Personal Contract Purchase (PCP) is another popular way to finance a new car. It combines lower monthly payments with flexibility at the end of the contract. With PCP, you pay a deposit and fixed monthly payments over a set term, typically ranging from two to four years.

At the end of the agreement, you have three options. You can return the car with no additional payment, make the final balloon payment and keep the car, or trade it in and use any equity towards a new PCP deal.

PCP is well-suited for drivers who are unsure if they want to own the car or would like the flexibility to decide later. It also allows you to keep your monthly payments lower compared to traditional hire purchase agreements.

Key Differences Between PCH and PCP

While both options offer affordable ways to drive a new car, the main difference lies in ownership. With Contract Hire, you never own the vehicle. You lease it, make fixed payments, and return it at the end of the lease term. With PCP, you have the option to purchase the vehicle at the end of the agreement if you wish.

Contract Hire suits drivers who prefer not to own a car and want predictable, all-inclusive monthly costs. PCP is ideal for those who may wish to purchase the vehicle or prefer having options at the end of the agreement.

Both options involve mileage limits and potential charges for damage. However, Contract Hire is often the more straightforward choice if you want to lease a car without any further commitment.

Which Option Should You Choose?

Choosing between Contract Hire and Personal Contract Purchase (PCP) depends on your needs and preferences.

If you want a fully maintained car with lower costs and no intention to own it, Contract Hire is likely the best option. You can enjoy driving a new car every few years, without worrying about its future value.

If you like the idea of possibly owning the car or using the equity towards another purchase, and you don't mind a larger final payment, a PCP may be a better choice. It provides flexibility and works well for those who are not yet ready to commit to a single path.

Things to Consider Before You Decide

Before choosing between Contract Hire and Personal Contract Purchase (PCP), it is essential to carefully consider mileage limits, as exceeding them can result in additional charges. You should also think about your long-term plans. If you know you won't want to own the car, Contract Hire may be a more straightforward solution. If you want the flexibility to buy or switch, PCP offers more options.

Condition standards also apply to both types of agreement. Keeping the car in good condition can help you avoid extra charges when returning it.

For businesses, VAT treatment may also influence your decision, as Contract Hire often offers better VAT advantages.

Final Thoughts

Both Contract Hire and PCP offer excellent ways to drive a new car for a low monthly cost. The best choice depends on whether you prefer the simplicity of leasing or the flexibility to buy at the end of your contract.

At Silverstone Leasing, we make leasing simplified and service personalised. Our experienced team is here to help you understand your options and guide you towards the perfect solution for your needs.

If you're unsure which finance option suits you best, contact Silverstone Leasing today for friendly, expert advice and competitive leasing deals.

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