What is Personal Contract Hire?
January 22, 2021 by Ryan Hirons
Read this advice guide to find out what you need to know.
- Personal Contract Hire explained
- The pros and cons of Personal Contract Hire
- Can you cancel an agreement before it ends?
- Credit score explained – and can you take an agreement out with bad credit?
What is Personal Contract Hire?
Personal Contract Hire (PCH) is one of the ways a car can be leased, and a popular one at that.
It’s a long-term leasing agreement that’s well-suited if you want a new car, but don’t want to purchase it at the end of the term.
Though similar to other types of contract hire, the key difference for PCH compared with others is that it applies to individuals (hence personal), rather than a business.
As the start of a PCH agreement, you’ll pay a deposit (generally the equivalent to 6-12 months payment) followed by fixed monthly payments for an agreed length of time. These agreements typically range from 12 months to 48 months, though can vary.
Who is Personal Contract Hire for?
Personal Contract Hire agreements are aimed at individuals, rather than businesses in the way other lease agreements are. They work in a similar way, proving ideal if you’d rather effectively rent the car for a set term without purchasing at the end rather than entering an agreement with a view to ownership.
If you want to own the car at the end of an agreement, or at least have the option to do so, you may be better suited with a Personal Contract Purchase (PCP) or Hire Purchase (HP) agreement.
It’s worth noting that PCH agreements tend to only be available for brand-new cars, though availability second-hand leases are gradually increasing
What are the benefits of Personal Contract Hire?
The biggest benefit of a Personal Contract Hire agreement is a typically lower monthly payment compared with other agreement types. As you’re not paying towards ownership of the car, you’re effectively renting it, meaning there’s less to pay.
It also means you can simply give the car back at the end of the agreement hassle-free, and without any extra costs at the end – assuming the car is kept in good condition, with no issues beyond regular wear and tear.
That last point is made a lot easier if your deal includes a maintenance package, which covers the cost of regular servicing, as well as tax and sometimes even insurance.
Some agreements have these packages included, or available for a little bit extra on top of your monthly payment. You’ll still have to pay for your own fuel, though. Sorry.
What are the cons of Personal Contract Hire?
So cheaper payments, plus packages to make looking after the car effortless and simply handing the keys back when you’re done. Sounds ideal, right?
Well, Personal Contract Hire isn’t for everyone. For starters, there’s no option to purchase the car at the end of the agreement – no matter how attached to it you may become.
You’ll also need to agree to an annual mileage cap. If you then exceed that, you’ll have to pay extra fees when it comes to giving the car back. On top of that, it’s a bit like a mobile contract. If you want to make changes to the agreement or cancel early, it’s possible that extra charges will apply.
Can I cancel a PCH agreement before the rental period ends?
There could be a number of reasons – you can no longer afford the payment or simply don’t want the car anymore for example – you may want to cancel a Personal Contract Hire agreement, but are you able to do that?
It’s not a clear cut yes, unlike PCP and HP which are required to have ‘voluntary termination’ clauses. For PCH, agreeing to end a lease early is usually at the discretion of the lender and can be difficult.
The documentation for your agreement will have details of the lender’s cancellation policy, so have a thorough check there before speaking directly to them. If you do decide you wish to cancel, ensure you contact the lender first and come to an agreement – simply ending payments won’t cancel the contract and will have a negative impact on your credit score.
Can I lease a car if I have bad credit?
The good news is if you have a bad credit score but still want to lease a car, it should still possible to take out a Personal Contract Hire agreement.
Granted, your choice of lenders may be restricted and the likelihood is you’ll have to pay higher interest rates, but as different providers have different requirements, it’s worth shopping around to find a deal to suit you.
If you’re unsure if your credit score is good or not, you should use a tool to check your score before applying for an agreement. Applying for credit and being rejected could worsen your score and make you less likely to be successful for future credit applications, so it’s worth being clued up beforehand.
What happens at the end of the contract?
Once your Personal Contract Hire comes to an end, you can simply hand the car back over to the lender hassle-free.
If you’ve stuck to the agreed mileage and returned the car in good condition (maintained to manufacturer guidelines, damage-free and a bit of allowance for fair wear and tear), it should be as simple as that. You’re then free to shop around, potentially take out another PCH agreement if you so choose or consider your options for your next car.
Things can be a little trickier if the car is damaged or you have exceeded the mileage allowance as there may be extra fees to pay. Check your agreement’s documentation for more information there, and be willing to have an honest conversation with your lender if you know you’ve exceeded the figure or have damaged the car.
What is a credit score, and what is my credit score?
A credit score is a tool used by lenders to help determine if you’re qualified to borrow from them – be that a credit card, paying monthly for a fridge or taking out a finance agreement.
In effect, this score tells you what kind of a borrower you are. If you repay your credit agreements on time consistently and in full, you’re likely to have a high score. On the flip side, if you’re prone to missing or being late to make payments, or apply for credit overly often, your score can be negatively affected.
The better your score, the more likely lenders will agree to fund your purchase with lower interest rates too.
A number of websites can track your credit score for free by accessing the same financial data that lenders can see, without having an impact on the figure. This is a great way to see how likely you are to successfully apply for car finance before diving straight in.
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