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Personal Contract Hire

Personal Contract Hire ('PCH') is a type of leasing and a way of acquiring the use of a vehicle without ever taking ownership of it.

The PCH hire period is usually a number of months or years during which the vehicle is still owned by the leasing company. Effectively the lessee (the person to whom the vehicle is leased) is borrowing the vehicle from the leasing company for a fixed period in return for a lease or hire payment often called a 'rental'.

What's In the Rentals?

During the lease period the lessee pays a rental to the leasing company which covers the costs incurred by the leasing company to operate the vehicle.

In other words, the lessee pays for:

Depreciation
Vehicle Excise Duty (the tax disc)
Interest Charges
Profit Margin
VAT
Maintenance (Optional)

At the end of the lease period the lessee normally returns the vehicle to the leasing company. The leasing company disposes of the vehicle and takes any profit or loss on the sale.

Advantages

Because the leasing company recovers VAT on the price of the vehicle the PCH rentals for passenger cars will be lower than comparable finance instalments for personal contract purchase.

Because the vehicle is leased, the normal responsibilities of ownerhip, such as sourcing the best deal and obtaining the best resale (or 'residual') value, are avoided, as is the risk of the residual value being less than expected.

In effect, the lessee simple operates the vehicle rather than owning it, so PCH is sometimes referred to as an 'operating lease'

Disadvantages

If the PCH agreement is terminated earlier than expected then the lessee may be required to pay a penalty (usually a number of months rentals).

Because a PCH agreement is a hire agreement it is subject to VAT, which is added to the monthly payments.

A PCH agreement will usually be for an agreed period and cover a fixed number of miles, either annually or in total over the life of the PCH agreement, known as the 'contract miles'.

If the vehicle exceeds the contract miles an excess mileage charge will apply per extra mile travelled.

The vehicle must be returned in a condition appropriate for its age and mileage.

Most leasing companies abide by the British Vehicle Rental & Leasing Association's ‘fair wear and tear’ guidelines to determine whether bodywork or interior wear and tear/damage is excessive in relation to a vehicle's age/mileage.

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