PCH meaning: what is Personal Contract Hire?

Personal Contract Hire is a popular way to drive a new car. But is PCH the right choice for you? Our guide explains what you need to know.

Personal Contract Hire (PCH) lets you drive a new car without owning it. After an initial payment (typically 6-12 months), you pay fixed monthly instalments over two to four years. When the contract ends, you simply return the car to the leasing company.

Here’s everything you need to know about PCH and whether it’s the right choice for you.

Remember, you can buy a brand new or used car right here on Carwow. And you can sell your car, too. We’re here to help you through every step of your car-changing journey.

What is Personal Contract Hire (PCH)?

Personal Contract Hire (PCH) is a form of car leasing where you hire a vehicle for a set term, usually two to four years. Unlike other finance options, there’s no opportunity to buy the car at the end — you simply hand it back.

While contract hire is common for company cars (where VAT can be reclaimed), private individuals can also take out a PCH agreement. However, you must pay an additional 20% VAT.

The main attraction of PCH is the ability to drive a new car every few years, often with lower monthly payments than other finance options. But it’s important to understand the trade-offs: you won’t own the car, you won’t build equity (as you might with PCP agreements), and overall costs may be higher than financing a used car with a lower purchase price.

Before signing a contract, make sure you understand how PCH works, its potential drawbacks, and whether it’s the best choice for your circumstances.

How does Personal Contract Hire work?

Here’s a simple step-by-step guide to how PCH works:

1. Eligibility

You’ve found the car you want to lease, so before you sign any kind of financial agreement, you’ll have to undergo a credit check. However, the checks for PCH deals tend to be less stringent than for a PCP, HP, or personal loan to finance the car.

2. First payment

Your initial payment will be equal to anywhere from three to 12 months of regular payments. You will choose the amount you want to pay upfront, but bear in mind that the more you pay upfront, the lower your regular monthly instalments will be.

3. Monthly payments

You’ll then make monthly payments for as long as the term of your agreement. Again, you can often choose how long this is at the start of the process, but most PCH deals tend to last 24, 36 or 48 months.

4. Hand the car back

At the end of the PCH agreement, all you have to do is return the car to the finance company. There’s no option to buy the car outright, but you might be able to extend the PCH, if the leasing company agrees. You must return the car with all original documents and in good condition: you will be liable for any damage considered to be above and beyond general wear and tear.

Pros and cons of Personal Contract Hire

You’ve found a car, but you’re not sure if PCH is right for you. Here are some pros and cons to help you decide.

Pros of Personal Contract Hire

• Easy to manage: Pay an initial rental, then fixed monthly payments.
• Lower monthly costs: PCH often offers the cheapest monthly payments compared to other finance options.
• No risk from depreciation: If the car loses value faster than expected, it doesn’t cost you extra.
• Maintenance included: Servicing and maintenance can be part of the deal, so there are no surprise bills. Tax is also usually included.

Cons of Personal Contract Hire

• Extra charges: You’ll be charged for any damage beyond fair wear and tear, and for exceeding your agreed mileage.
• No ownership: You can’t buy the car at the end of the contract — it must be returned.
• Mostly new cars: PCH is usually only available on new cars, and used car deals are rare (and often expensive).
• Hard to exit early: Ending a PCH agreement before the term ends can be difficult and costly.

Personal Contract Purchase vs Hire Purchase

If PCH isn’t right for you, there are a couple of other options: Personal Contract Purchase (PCP) and Hire Purchase (HP). But what are the differences between PCP and HP?

PCP lets you return, keep, or trade in a car at the end of the term, with lower monthly payments based on depreciation. HP, on the other hand, spreads the cost of the car over a set period, and you own it once all payments are complete, usually with higher monthly payments and no mileage limits.

Is Personal Contract Hire right for me?

If you don’t want to own a car and are happy returning it at the end of the term, Personal Contract Hire could be a good fit. It’s also often easier to arrange than other finance options if you have a poor credit history.

PCH deals can be tailored to suit your budget, adjusting the initial payment, contract length, and annual mileage. Because the leasing company owns the car, you’re protected if its value falls unexpectedly.

PCH is usually only available on new cars. If you want lower monthly payments or the option to buy the car at the end, Personal Contract Purchase (PCP) may be a better option. PCP allows you to either return the car, pay a final balloon payment to keep it, or trade it in for a new one.

Hire Purchase (HP) is another alternative, letting you finance a car and keep it at the end of the term. With HP, you’re responsible for maintenance and there are no mileage limits, but the finance company remains the legal owner until the final payment.

Personal Contract Hire FAQs

Can I buy the car after my Personal Contract Hire agreement has ended?

Generally not because of the way the financial agreement has been set up by the leasing company (which is the legal owner), which has HMRC and VAT implications. However, every lender has a different policy and some do have arrangements with remarketing companies that enable you to buy the car.

Can I cancel my Personal Contract Hire agreement early?

You can, but you will need to check the cancellation policy. PCP and HP agreements are required to have ‘voluntary termination’ clauses, but this is not the case with a PCH, so ending a lease early is usually at the discretion of the lender. The agreement’s documentation will contain details of the lender’s cancellation policy, so it’s worth checking it before speaking to them. If you still want to cancel, contact the lender first and come to an agreement: if you just stop making payments, the agreement won’t be cancelled and your credit score will take a big hit.

What happens if I can’t keep up with my Personal Contract Hire payments?

While there’s no formal way of returning a car leased using PCH, if you can’t keep up with your monthly payments, it’s worth speaking to your finance company. They might be able to help: an early settlement, for example, might enable you to pay a percentage of the remaining monthly payments, which could be a better long-term financial decision.

Car change? Carwow!

Looking for a new set of wheels? With Carwow you can sell your car quickly and for a fair price – as well as find great offers on your next one. Whether you’re looking to buy a car brand new, are after something used or you want to explore car leasing options, Carwow is your one stop shop for new car deals.

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