What is PCH?
PCH stands for Personal Contract Hire, although it may more commonly be referred to as personal car leasing. Businesses have been leasing cars for years; it’s a great way for them to maintain a fleet whilst keeping costs down. So, how does it work on a personal level? In this article, we will explain everything to help you get a better understanding.
How it works
If you have ever bought a new car before, you’ll be aware it drops a good chunk of its value the minute you drive it off of the forecourt. The amount of money a car loses over its lifetime is called Deprecation and it’s is a funny thing. The rate of depreciation will vary greatly between different makes and models and will be affected by things like engine size, mileage etc. When you take out a PCH agreement, you are effectively leasing the car. This means you will never own it and, therefore, will not have to bear the brunt of the depreciation. In effect, you are paying for the amount the car depreciates over the period you own it. Say, for example, you would like a Ford Fiesta for 3 years. Using data from an industry specialist in depreciation such as CAP, the company you lease from can work out how much the car is likely to depreciate over the term of the agreement; this will give them the residual value (the amount it will be worth at the end of the contract). You then pay them the difference between the cost of the car new and the amount it will be worth at the end of the agreement, plus any fees and interest. This is divided up over the term of your contract to make the monthly payments. Due to depreciation being affected by mileage, the leasing company will ask you to tell them your expected annual mileage. This will be taken into account when working out the residual value. If you exceed this mileage over the term of your agreement you will have to pay excess mileage fees.
Can anyone get a car on PCH?
As with all forms of finance agreements, the applicant will need to be credit checked. In order to be credit checked for PCH you will need to be over 18 years of age. If the credit check does not go through then the applicant will not be able to enter into the leasing agreement. This is because the car does not actually belong to them throughout the period of the contract. The credit check is run in order to establish the risk to the finance company. If, for any reason, the credit check was declined then there is, of course, the possibility of somebody else applying for the car in their name for you. It is important to remember that they will ultimately be liable for the payments of the car throughout the agreement, should the driver not be able to meet them for any reason. Also, remember to ensure any named drivers are insured correctly with fully comprehensive cover.
When you lease a car, the costs are plain and simple. The monthly payments include the cost, interest and vehicle road tax. This makes it a convenient way to pay for a car. Being that the car is new, there is also no need for an MOT which helps to keep costs down further. Servicing is NOT included with the package unless you take out a service / maintenance agreement at the beginning of your agreement. The car will need to be serviced in line with the manufacturer’s guidelines to adhere to the requirements of the finance company. This is because at the end of your agreement they will be taking the car back to sell and cars with a service history hold their value better as it shows they have been looked after. Most lease companies offer maintenance plans which cover the cost of any maintenance work that needs to be done while you are in possession of the car and can work out extremely cost effective.
Who would benefit from personal car leasing?
Anyone that drives can benefit from leasing a car, the payments are clear and simple and everything is explained clearly at the beginning of the agreement. Having a brand new car that is safe and reliable is obviously of great benefit to any driver. * Nice new car. * Newer cars generally have greater fuel economy. * Newer cars are generally safer. * Vehicle tax is included. * No MOT required. * Affordable monthly payments.
Important things to remember
When you lease a car, it is not actually your property; you’re effectively paying for the miles you drive it. Because of this, it must be returned at the end of the agreement in good condition. Most companies will have a fair wear and tear policy that you should take the time to read before entering the agreement. Any damage is likely to be billed to you. The car also needs to have no excess mileage. If it is over the mileage of that agreed at the beginning of the deal you will be expected to pay a fee, details of this charge should be outlined in the agreement and you should be made aware of them from the offset. Any drivers of the car will need to be covered on a fully comprehensive car insurance policy. This is because the car is not your property. Should anything happen to it while you are driving it, you will be liable for the cost of the car. Sometimes the insurance company may pay out less than the total value of the car even under fully comp insurance. GAP insurance is a product which makes up the difference between the value of the car and the insurance companies pay out. If GAP insurance is something that interests you, make sure you check out all of the available deals and fully research it first as in some cases it may not be necessary. Finally, as we previously mentioned, it is important to meet the manufacturer’s service schedule whilst you are driving the car.