There is no single right way to get a car. For some, it’s going to be better to buy, for others it will be that leasing is the better option.
The finance agreement that’s most often used are these two options: (Personal Contract Purchase) and PCH ( Personal Contract Hire). These are the two most popular but HP still exists also. In this article, I’m going to explain how these work and what are the benefits and drawbacks of each, so you can better understand which might be the best fit for your needs.
PCP (Personal Contract Purchase)PCP normally starts with a substantial deposit, many people part exchange their old car. Then you have monthly repayments to make for a pre-agreed time period, which is normally 3 years (36 months) but can be longer.
The monthly payment is calculated to cover the cost of the depreciation of the car. Plus some interest for the finance company. After the 36 months of repayments, you’re left with 3 options.
1 - You can give the car back, and there will be no fee assuming the car is in good condition and within the mileage limit.
2 - You can buy the car. There will be an agreed price for the price that was agreed when you signed the contract. You are able to buy the car at this price.
3 - You can exchange for a new car. You’ll be expected to pay a fee again, a deposit, but you can just give back this car and get a brand new car. People love the flexibility, it’s a great option.
Also, compared to HP the monthly payments are much lower because the monthly repayments are to cover just the car’s depreciation in value (about 30-40% of the car’s value in 3 years) not the full value of the car.
It can be a little complicated and most often you should expect to pay a hefty deposit, but still, that will also decrease the monthly repayment fee. There might be variations of this kind of contract, this is just a general idea how PCP works.
PCH (Personal Contract Hire) is straight up long term rental and something that car leasing companies like Yes Lease use most.
It’s similar to PCP in some ways. You choose a car, and you’ll pay an initial fee. It will usually be less than PCP. It's 3 months or 6 months of monthly payments in advance, but this comes off the repayments so the more you pay upfront the lower your monthly repayments are.
We actually have a lot of zero deposit car leasing deals too, so it’s perfect for people who really don’t have a lot of cash upfront.
It’s so straightforward because you pay a set fee for a set period of time and then give the car back. Like PCP the monthly payments only cover the depreciation of the car.
Car leasing deals using the PCH model often means taking the cars that car dealers can’t sell and offering them as lease deals at discounted prices.
So dealers order too many cars, can't sell them using the PCP model, so they look to leasing companies to lease the cars at a discounted price. At the same time, it’s the most transparent and straightforward. However, you don’t get the option to purchase.
Hire Purchase deals are Somewhat outdated for one simple reason. The monthly repayments are really high. Simply, you choose to buy a car. They split the value of the car into 36, 48 or 60 months. When you have paid the last repayment the car is yours.
The deposit is normally very high to cover the risk of depreciation meaning the car has negative equity. It’s great if you’re the type of person who likes to own your car, but monthly repayments are really high in comparison to the other models, sometimes as much as double.