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What is Personal Contract Hire? What you need to know

Personal Contract Hire (PCH) means you could choose a brand new car every few years. As a sort of long-term car hire agreement, the monthly payments with PCH can be more affordable than for other types of car finance. But you can't use PCH to buy a car: at the end of the hire agreement, you must give the car back.

Young couple choosing a car at the dealership talking to a car salesman with tablet in hands

 

What is PCH car finance?

Personal Contract Hire (PCH) car finance, also known as car leasing, is a type of long-term car hire agreement. PCH car finance doesn’t give you the option to own the car – at the end of the personal contract lease term, you must return the car to the leasing company. This is a key difference with Personal Contract Purchase (PCP) car finance, which gives you the option to buy the car.

While your PCH agreement is live, you still have to get car insurance for the vehicle you’re leasing. This is despite the fact that you aren't the legal keeper or owner if you get a car with a personal contract hire agreement.

There are 3 key stages to PCH car finance:

  • Make an initial deposit. This can be the equivalent of 3, 6 or 9 months’ worth of your personal contract hire agreement's monthly payments. The higher the initial deposit you choose, the lower your monthly payments tend to be.
  • Pay set monthly instalments over the term of your personal contract lease. A PCH agreement on a car can typically last from 12 to 48 months.
  • Return the car to the leasing company at the end of your personal contract hire deal.
 

Are there mileage allowances with leasing?

Yes, most PCH deals come with an annual mileage allowance that you agree to beforehand.

If you exceed this allowance, there could be an extra charge per mile you go over. It’s important to think carefully about your needs before you sign a personal contract hire agreement to make sure the mileage limit is right for you.

 

Personal contract hire: pros and cons

Pros

  • Lower deposit

    The upfront deposit required with PCH could be much lower than with other types of car finance.

  • Cheaper monthly payments

    Monthly payments on personal contract hire are sometimes cheaper than with other car finance options.

  • No 'balloon' payment

    There’s no larger 'balloon' payment to make at the end of a PCH car leasing agreement.

  • You don’t pay for depreciation

    Since you give back the car at the end of your PCH deal, you don’t need to worry about depreciation.

  • Regularly change your car

    You could get the freedom to change your car every few years without worrying about having to sell the old one.

  • Extras included

    Some PCH packages might also include car tax and regular servicing.

Cons

  • You don’t own the car

    PCH doesn’t give you the option to buy the car, so you don’t own it at the end of your car leasing agreement.

  • Annual mileage allowance

    There’s an annual mileage allowance with PCH – going over it could mean extra charges.

  • Charges for damage

    PCH deals require you to return the car in good repair and condition. So, any excessive damage could cost you when the personal contract hire ends.

 

Can I cancel a PCH agreement before the end of the lease?

Whether you can cancel your PCH deal early depends on the specific lender as to what their terms are for PCH cancellations, also called ‘early termination.’

There's likely to be a fee for cancelling your personal contract lease early, but the amount could vary between lenders. Check the specifics of your personal contract hire agreement before committing to anything.

 

PCH vs PCP

Here are some key differences to keep in mind between PCH and PCP car finance:

Personal Contract Purchase (PCP) Personal Contract Hire (PCH)
Minimum deposit required
10% of the car’s value
Three months of monthly instalments
Monthly payments
Higher than PCH but lower than Hire Purchase (HP)
Lower than other types of car finance
Mileage allowance
You choose before you sign up
You choose before you sign up
Buying the car
You get an option to buy the car
You can’t buy the car
Balloon payment
Payable at the end if you choose to buy the car
None
Maintenance and tax
Not included
Often included
Early termination
Ending the agreement early can be costly
Extra charges may apply
 

Can I lease a car if I have bad credit?

Yes, you can lease a car even if you have a poor credit history. But you may find that your PCH options are limited if you’ve got a bad credit rating. Many lenders could either refuse to give you a personal contract hire deal or offer you one with higher rates.

There may be some companies that specialise in bad credit car leasing. But you could also work on improving your credit score to make you a better fit for more lenders.

 

Is personal contract hire right for me?

Personal contract hire is a popular type of car leasing agreement that people often use to get a brand new car every few years. The upfront deposit and monthly payments with personal contract hire tend to be lower than for other types of car finance.

Many people choose 36-month personal contract hire deals as new cars are often sold with a 3-year warranty. Their monthly payments also tend be lower than with a 12 or 24-month car leasing deal. Others might be attracted to 12-month PCH agreements because they want to choose a new car from the latest models that come out each year.

But some people do opt for longer, 48-month personal contract hire deals as the payments can be even lower. Choosing a 48-month PCH deal might also allow you to get a more upmarket car as it stretches your budget further.

As with other types of car finance, with personal contract hire you still have to keep within your chosen annual mileage limit to avoid additional charges. When you give back the car at the end of the hire agreement, the car leasing company expects the car to be in good condition. They might charge you for any damage that’s beyond 'fair wear and tear'.

You can’t use personal contract hire to buy a car but it's still your responsibility to buy car insurance over the length of your leasing agreement.

If you do want to use car finance to actually buy a car, you could consider other car finance options instead, such as Hire Purchase (HP) or Personal Contract Purchase (PCP).