Personal Contract Hire
When I speak with friends and family about vehicle leasing (after we’ve finished arguing about which film from The Lords of the Rings trilogy was best – the correct answer is all of them!), it is apparent that there are a few misconceptions. Primarily that there is only one, heavily-slandered, type of lease agreement. There’s actually a few and they vary considerably; some will match what you are after and some won’t be as suitable.
So, let’s look at the most popular form of vehicle lease agreement – Personal Contract Hire.
What is Personal Contract Hire?
Personal Contract Hire, also referred to as Personal Leasing or abbreviated to simply ‘PCH’, is a form of leasing agreement designed for individual consumers. Contract Hire works like a long-term rental agreement. You simply rent a vehicle over a set number of years (measured in months – i.e. 18, 24, 36, 48 etc.) and then the vehicle is collected at the end, freeing you from having to sell the vehicle at a heavily reduced rate compared to what you spent on it brand new (depreciated value).
The concept is simple enough:
- You choose a brand new car that you want.
- You can add some fun and functional options to it.
- We then order that car through a franchised dealership, either using their existing stock or putting a build order into their factory.
- A Finance Company (a.k.a. Funder) then buys that car.
- You are then in agreement with the Funder that you will rent your chosen car from them, paying them a pre-agreed fixed payment each month, for the duration of the contract.
- The Funder then collects the vehicle at the end of your contract hire term and you get to pick a brand new car again.
What Is Good About PCH?
That is a great question and I’m so glad you’ve asked it. You will always have to consider if a financial product is a good match for your needs and circumstances.
Allow me to highlight some of the key benefits and features of a PCH:
- You get to drive a brand new factory fresh car… regularly!
- Fixed monthly payments
- Road Tax included for the duration of the contract
- Optional Maintenance package to cover the cost of servicing, general maintenance and replacement tyres (subject to the level of cover and provider’s T&Cs)
- No risk of losing £1,000s on vehicle depreciation
- Full manufacturer’s warranty
- Free delivery to any mainland UK address – no need to travel to a dealership, it comes right to your door! (Unless your door is above ground floor… cars don’t hover yet)
- Rentals are affected by the residual value of the car, not just the purchase price. You can sometimes get a better car for less money if it holds its value better
What is Residual Value?
Some of you curious cats will have been looking at that last point and thinking “what is a residual value” and you may have been feeling silly for not knowing. Well, worry no longer!
Residual value refers to how much an item is worth after a period of time has elapsed. Cars are well known for being depreciating assets – this means that their value will only decrease. This usually happens at what I can only describe as an inversely-exponential rate. Similar to going on a diet – you start off losing lots of weight very quickly, this rate of loss eventually slows down and you begin to plateau and only lose small amounts of weight.
Cars will lose a lot of their value very quickly. Some cars turn their noses up at fad diets and hold on to their value very well… particularly high-end limited edition vehicles – but all of the more mainstream vehicles will hit the salad bar and shed their value quickly.
With Contract Hire, the total cost of your monthly rentals is roughly calculated like this:
(Vehicle Purchase Price) – (Residual Value) = Total Rental Cost with the total rental cost being divided up by your chosen ‘payment profile’.
The cost of the lease segment is then divided over how many payments you choose to make across the duration of the contract (e.g. 9+ 23 = 32 monthly payments over 24 months, with 9 monthly rentals being paid together initially, followed by 23 monthly payments).
Am I Eligible For A PCH?
As with all financial credit agreements, you will need to meet eligibility criteria and be subjected to a credit check by the finance company. There’s a lot of credit scoring agencies out there, Experian and Equifax most notably, which will tell you your credit score free-of-charge for life; so it may be worth taking a little time to update yourself on your current credit rating.
Are you eligible for finance?
Answer some of our questions and we can tell you if you are eligible for finance.
Are you over the age of 18?
Unfortunately you need to be 18 years or older to apply for finance.
Are you in full time employment?
That's OK, our lenders will just need some more information in the application process. Please call a member of the team for more information on 0330 221 0000 or email us firstname.lastname@example.org
Great, how many years have you been employed?
How many years have you lived at your current address?
Our lenders will need at least 4 years address history on a PCH (Personal Contract Hire).
Have you been declined for finance before?
How long ago were you declined?
We're sorry, you may not be eligible for finance at this time. Please contact our sales team for more information on 0330 221 0000
That's OK, we may need some more information to give to the lender on your application.
Have you got any bad credit history? eg. CCJ, bankruptcy, late payments.
How many years ago was this?
Great news, you are eligible to apply for finance based on the answers you provided.
Generally, all of the finance companies will need at least the following criteria to be met:
- Minimum age of 18 years
- Employed full-time
- Minimum of 5 years address history
- Minimum of 5 years employment history
- No CCJs (County Court Judgements) or credit arrears
If you have any doubt about the above, or how it might affect your application for finance, call our Sales Executives on 0330 221 0000 for further guidance.
What Should I Take Into Consideration With A PCH?
Look at you with another great question! You are on a roll! A very mature and responsible question, you should always think about whether a financial product is right for you, by looking at its drawbacks.
With a Personal Contract Hire agreement, some points to consider would be:
- You will not own the car. You will, however, be the registered keeper
- You must have fully comprehensive insurance. You are responsible for this and must have cover in place for the duration of the lease agreement
- Terminating the contract early can be expensive. An early termination will incur a fee from the Funder, which is usually equal to between 50-100% of the remaining monthly payments
- You are limited on your mileage. When you take out your contract, you will agree to a contract mileage allowance (this is divided out into annual amounts for pricing purposes). If you go over this contracted allowance, you will be charged an 'over miles' charge – which is expressed in your contract as “pence-per-mile” – as a lump sum at the end of your contract
What Happens At The End?
We will contact you around 6 months before the end of your contract to discuss what you would like to do. You can then either choose to extend your current vehicle for a small amount of time (subject to eligibility and the Funder’s Terms & Conditions) or to look at your next brand new car.
Regardless, at the end of the contract, the car will be collected by a collection agency working on behalf of the Funder. The driver will analyse and record any damage to the vehicle, in line with the BVRLA’s Fair Wear & Tear Guidelines. Any damage that falls outside of these guidelines will be deemed chargeable to you.
The car will then be taken away and your contract will expire, releasing you to receive your next beautiful brand new vehicle.
If you require any further information about Personal Contract Hire or would like to know about our current leasing special offers, please call us on 0330 221 0000 or email us at email@example.com.