Like to switch up your wheels? Personal contract deals could be for you!

JonathanNovember 29, 2017

Like to switch up your wheels? Personal contract deals could be for you!

Many Brits like to chop and change their cars rather than be tied to one vehicle for years on end, our latest survey has revealed.

Polling 1,000 drivers, we found that as many as one in five people now change their car every two years – mostly because of sky-high repair and running costs, but also because they simply want a change, or want to try out the latest models.

For drivers with an appetite for change, regularly buying a new car and selling your old one can be a hassle – not to mention expensive. If you change cars every two or three years, leasing a vehicle may offer a better way to experience all the latest tech and models instead, all for a simple monthly rate.

We offer two main ways to lease – Personal Contract Hire (PCH) and Personal Contract Purchase (PCP).

Personal Contract Hire Explained

In a PCH arrangement, it’s assumed that you don’t want to own the car at any point – and although you drive it and in most ways treat it as your own, like other types of car finance you will never actually own the vehicle.

This means depreciation is factored into your monthly rental payments, which are fixed from the start of the deal. Essentially, it’s a long-term car rental and, list like with a PCP deal, there’s an agreed mileage allowance to stick to too.

At the end of the lease period, you can extend the lease, change to a new lease for a new car, or simply walk away.

The biggest difference between PCP and PCH is that PCH tends to work out cheaper in terms of your monthly payments over the life of the deal, especially if your mileage is low.

If you know you’re going to want a different car in two or three years and you’ve no interest in buying, PCH could be for you!

Personal Contract Purchase Explained

PCP is another way of financing a vehicle, with the option of buying it at the end of a contract. It’s a good way to keep your options open, but be mindful of whether you will realistically purchase the car at the end of your contract – figures from the Finance and Leasing Association suggest that 4 out of 5 people with PCP plans opt NOT to buy their car at the end of the contract[1].

PCP contract take depreciation (the value the car loses between the beginning and the end of the contract) into account. When you begin a PCP contract, the Guaranteed Minimum Future Value (GMFV) of the car – the amount it’s expected to be worth when the contract expires – is agreed from the start. You’ll also agree to a set mileage allowance.

The loan you get, which you’ll be paying off each month, is for the predicted depreciation, plus interest. Since you’re only paying for a fraction of the car’s value, this means monthly payments can be lower than other forms of car finance.

When the contract ends, you have three options:

  • Buy the car. This means making a lump sum payment based on GMFV. Due to the interest you’ve already paid on the loan, this normally means paying more in the long run than if you’d bought the car outright.
  • Give the car back. You may have to pay additional costs if you’ve exceeded the mileage allowance or if the car is in a poor state of repair, but after this the deal is complete and settled. You can then start a new PCP or PCH deal with a new car if you like.
  • Part-exchange for a new car. If the trade-in value of the vehicle is higher than the GMFV, you can put the difference between the two towards a deposit for a new car.

[1] https://www.moneyadviceservice.org.uk/en/articles/leasing-a-car

Image: Woman in Car – ©iStock.com/praetorianphoto


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