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What is Personal Contract Hire?

When investing in a new car, you’ll be faced with a number of different ownership, payment, and warranty options. Perhaps one of the most common terms you’ll encounter is Personal Contract Hire. To help you make the right decision when choosing your next car, we’ve put together a guide to help you understand the ins and outs of Personal Contract Hire.

Personal Contract Hire, or more commonly known as car leasing, allows you to take control of a car for a pre-determined contractual period. Whist you’re free to use the car as it were your own within this period, ownership is never transferred to the lease holder. Instead of buying a car upfront, with Personal Contract Hire deals lease holders make regular payments to a leasing company. These payments are usually monthly, and last for the duration of the contract. When this contract expires, lease holders can either choose to return the car to the leasing company, or renew the existing contract and further use the car. 

In order to work out how much lease holders will pay each month, Personal Contract Hire companies need a few simple details. Payments are determined in reference to the cars value at the end of the contract, and to calculate this, the Contract Hire Company will ask you to estimate the number of miles you’re likely to drive for during your contract period. It’s important to be truthful with this, as if you exceed the estimated mileage, it’s likely you’ll have to pay a penalty. 

What are the advantages of Personal Contract Hire?

Personal Contract Hire deals are ideal for people wanting to stick to a strict budget. Monthly fees are fixed, and you won’t have to worry about interest charges. This is enhanced by a low initial payment, typically composed of three monthly payments at once. Again, road tax is included within the monthly payment, making one less thing to worry about.

There’s no worry about depreciation values. It’s well known that vehicles are one of the fastest depreciating investments that can be made. Personal Contract Hire eliminates this problem, as you won’t have to deal with the hassle of reselling the vehicle.

Many car lease or Personal Contract Hire deals have the option to include maintenance packages in the monthly fee. This means that you won’t have to worry about servicing, MOT, or spare parts replacement, as they’ll be included within your contract.

What are the disadvantages of Personal Contract Hire?

The main obvious disadvantage is that you don’t actually own the vehicle. For those wanting the freedom of ownership, leasing a vehicle might not be the best option.

Fixed term contract with penalties if finishing early

Changes to VAT rate during the lease period will be reflected in your monthly price. 

If you choose a Personal Contract Hire deal, you’ll have to take out comprehensive car insurance, rather than third party.

Why choose Personal Contract Hire?

Personal Contract Hire isn’t for everyone, and it’s important to assess your personal situation before thinking of choosing it.

For example, business owners thinking of leasing one or more cars should look into Business Contract Hire, as the terms and conditions of this type of hire are perhaps more applicable. Again, those with a high average mileage should take into account that higher average mileages typically increase the figure of monthly payments made.  

However, for those wishing to invest in a new car every few years without the hassle of ownership, and with a simple payment plan, Personal Contract Hire is a good option to look into.