Understanding PCP vs PCH: Which Car Finance Option is Right for You?

  • Finance


Are you looking to finance your next car but unsure whether PCP or PCH is the better option for you? Understanding the differences between Personal Contract Purchase (PCP) and Personal Contract Hire (PCH) can help you make an informed decision. Let’s delve into the details.

What is PCP?

PCP, or Personal Contract Purchase, offers flexibility and the option to own the car at the end of the agreement. Here’s how it works:

  • You pay an initial deposit followed by monthly payments over an agreed term, typically 2-4 years.

  • At the end of the contract, you have three options: return the car with nothing more to pay (subject to mileage and condition terms), trade it in for a new one, or pay the final balloon payment to own it outright.

  • PCP often offers lower monthly payments compared to traditional finance options.

What is PCH?

PCH, or Personal Contract Hire, is more like renting a car for a fixed period. Here’s what you need to know:

  • Similar to PCP, you pay an initial deposit followed by fixed monthly payments for the duration of the contract, typically 2-4 years.

  • Unlike PCP, there's no option to buy the car at the end of the contract. Instead, you return it to the leasing company, assuming you've adhered to mileage and condition limits.

  • PCH is popular for those who prefer to switch to a new car every few years without the hassle of ownership.

Which Option is Right for You?

Choosing between PCP and PCH depends on your preferences and circumstances:

  • If you like the idea of owning a car but want lower monthly payments and flexibility at the end of the agreement, PCP could be the better choice.

  • On the other hand, if you prefer fixed monthly payments and don’t want the hassle of ownership or the risk of depreciation, PCH might suit you better.

  • Consider factors such as your budget, driving habits, and whether you like to change cars frequently when making your decision.

PCP vs PCH: Car Maintenance

PCP Car Maintenance

The Guaranteed Future Value (GFV) of your PCP car relies significantly on returning it with a comprehensive manufacturer service history. Meaning regular maintenance and servicing is crucial. Some contracts stipulate that servicing must be conducted solely by their authorised dealer service network. It's important to review the fine print and enquire with the provider about any such requirements. Failure to comply can lead to the invalidation of the GFV and potential fines, sometimes amounting to £1,000, if servicing is not carried out by an approved dealer service or if it is delayed.

PCH Car Maintenance

Leasing firms typically offer maintenance packages, which are additional charges on top of your monthly leasing payment. These packages vary in coverage but commonly include repairs and replacements due to fair wear and tear, such as new tires, brakes, exhausts, and breakdown cover.

PCP: Do I Own the Car?

With PCP, you don’t technically own the car until you’ve completed all the payments and officially purchased it. At the end of the contract, if you want to own the car outright, you can make a final balloon payment. This grants you full ownership, allowing you to continue driving the car, sell it, or part-exchange it for a new one. Alternatively, if you're considering other options, you can simply return the car to the provider or trade it in for a new car on a new PCP contract. However, it's important to note that if the car's value is below the Guaranteed Future Value (GFV) at the end of the contract (due to damage or excess mileage, for example), you may be required to repay the difference yourself.

PCH: Do I Own the Car?

On the other hand, with PCH or car leasing, you never own the car as it is not considered an asset. Once you've completed your monthly payments, you simply hand the car back without the option to buy or sell it.

This provides a clear comparison of the ownership aspect between PCP and PCH, helping users understand the differences in ownership between the two car finance options.

Both PCP and PCH offer distinct advantages, so it's essential to weigh your options carefully. Whether you prioritise ownership flexibility or hassle-free leasing, understanding the differences between PCP and PCH can help you choose the car finance option that best suits your needs.

Written by Katie Roberts

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