What is PCH? A guide to car leasing

Personal Contract Hire (PCH) is one of several types of car finance agreements available to help you purchase your next car. Find out more about how leasing works in our guide.

What is PCH? A guide to car leasing

Personal Contract Hire (PCH) is one of several types of car finance agreements available to help you purchase your next car. Find out more about how leasing works in our guide.

As with other forms of finance, such as Conditional Sale (CS) and Hire Purchase (HP), PCH provides buyers with a convenient, affordable way of getting the vehicle they need without having to pay the full amount upfront.

A PCH agreement is a long-term lease, so your monthly payments don’t contribute to paying off a loan. At the end of the agreement, you’ll return the car and be free to start a new agreement or look elsewhere for a new vehicle.

To help you decide whether it’s the right type of agreement for you, we’ve created this guide. Here, we explore the features, benefits, and limitations of PCH agreements compared with other types of car finance.

What is PCH and how does it work?

Personal Contract Hire (PCH) is a long-term lease designed for people who want to drive a new car but don’t want to own the vehicle when the agreement ends. On a PCH deal, you will make fixed monthly payments for a set period, usually between two and four years.

At the end of the agreement, you give the car back to the dealership or finance provider and can then take out another finance agreement on a new car.

How a PCH agreement works

As with other forms of finance, such as Conditional Sale (CS) and Hire Purchase (HP), PCH provides buyers with a convenient, affordable way of getting the vehicle they need without having to pay the full amount upfront.

A PCH agreement is a long-term lease, so your monthly payments don’t contribute to paying off a loan. At the end of the agreement, you’ll return the car and be free to start a new agreement or look elsewhere for a new vehicle.

To help you decide whether it’s the right type of agreement for you, we’ve created this guide. Here, we explore the features, benefits, and limitations of PCH agreements compared with other types of car finance.

What is PCH and how does it work?

Personal Contract Hire (PCH) is a long-term lease designed for people who want to drive a new car but don’t want to own the vehicle when the agreement ends. On a PCH deal, you will make fixed monthly payments for a set period, usually between two and four years.

At the end of the agreement, you give the car back to the dealership or finance provider and can then take out another finance agreement on a new car.

How a PCH agreement works

To decide whether a PCH agreement is the right type of vehicle finance for you, you’ll need to understand how one works. Here is an overview of how PCH deals typically work from start to finish, though your own agreement may differ slightly depending on your financial circumstances and leasing provider.

Step 1: choose a car that meets your requirements from the list of makes and models offered by a dealership or finance provider. PCH agreements are available for both used and new cars. Every leasing provider is different, so make sure you do your research and fully understand the terms and conditions before applying.

Step 2: decide your annual mileage limit (the most you can travel in the car each year). While higher mileage limits typically mean higher monthly payments, exceeding your agreed mileage limit for the year means you’ll pay an additional fee, so set a limit that’s high enough for your circumstances.

Step 3: decide how long you want your PCH agreement to last. Most finance providers offer PCH deals between two and four years.

Car leasing PCH diagram

To decide whether a PCH agreement is the right type of vehicle finance for you, you’ll need to understand how one works. Here is an overview of how PCH deals typically work from start to finish, though your own agreement may differ slightly depending on your financial circumstances and leasing provider.

Car leasing PCH diagram

Step 1: choose a car that meets your requirements from the list of makes and models offered by a dealership or finance provider. PCH agreements are available for both used and new cars. Every leasing provider is different, so make sure you do your research and fully understand the terms and conditions before applying.

Step 2: decide your annual mileage limit (the most you can travel in the car each year). While higher mileage limits typically mean higher monthly payments, exceeding your agreed mileage limit for the year means you’ll pay an additional fee, so set a limit that’s high enough for your circumstances.

Step 3: decide how long you want your PCH agreement to last. Most finance providers offer PCH deals between two and four years.

Step 4: make an initial rental payment to secure your vehicle and reduce the remaining monthly payments.

Step 5: begin making fixed monthly payments for your car over the agreed time period. Depending on your agreement, you may be responsible for any additional costs of running your car, such as Vehicle Excise Duty (road tax), insurance, regular servicing and maintenance, so make sure you understand your lease agreement before signing it.

Step 6: at the end of the agreement, give the car back to the dealership or finance provider. Unlike other types of car finance, such as a Personal Contract Purchase or a Hire Purchase agreement, there is no option to purchase the car and become its legal owner.

Other things to consider with leasing

  • It may be possible to end your agreement early and give your car back to the dealership or finance provider, but you may need to pay an early termination fee to do so.
  • You may have lower monthly payments on a PCH agreement than other types of car finance, but you won’t have the option to buy the car at the end of the agreement.
  • When you hand the vehicle back to the dealership or finance company, you may need to pay additional charges if it has damage outside of fair wear and tear or excess mileage.
  • Before being accepted for a PCH agreement, the car leasing company will require you to pass a credit check. This ensures you can afford the fixed monthly rental associated with the PCH. Some leasing companies use a hard check at the point of application which does affect your credit score, while others may use a soft check.

Is PCH right for me?

Whether a PCH agreement is suitable for you or not will depend on several key factors, including:

  • If you want to own the car at the end of the agreement
  • How many miles you drive and whether this could increase
  • Whether you want to pay a deposit upfront or not.

Step 4: make an initial rental payment to secure your vehicle and reduce the remaining monthly payments.

Step 5: begin making fixed monthly payments for your car over the agreed time period. Depending on your agreement, you may be responsible for any additional costs of running your car, such as Vehicle Excise Duty (road tax), insurance, regular servicing and maintenance, so make sure you understand your lease agreement before signing it.

Step 6: at the end of the agreement, give the car back to the dealership or finance provider. Unlike other types of car finance, such as a Personal Contract Purchase or a Hire Purchase agreement, there is no option to purchase the car and become its legal owner.

Other things to consider with leasing

  • It may be possible to end your agreement early and give your car back to the dealership or finance provider, but you may need to pay an early termination fee to do so.
  • You may have lower monthly payments on a PCH agreement than other types of car finance, but you won’t have the option to buy the car at the end of the agreement.
  • When you hand the vehicle back to the dealership or finance company, you may need to pay additional charges if it has damage outside of fair wear and tear or excess mileage.
  • Before being accepted for a PCH agreement, the car leasing company will require you to pass a credit check. This ensures you can afford the fixed monthly rental associated with the PCH. Some leasing companies use a hard check at the point of application which does affect your credit score, while others may use a soft check.

Is PCH right for me?

Whether a PCH agreement is suitable for you or not will depend on several key factors, including:

  • If you want to own the car at the end of the agreement
  • How many miles you drive and whether this could increase
  • Whether you want to pay a deposit upfront or not.

Pros of PCH agreements

  • Potentially lower monthly payments than other finance options
  • No commitments to buy outright
  • You can get a new car more often.

Cons of PCH agreements

  • You won’t have any equity to carry over to a new car like you would with finance
  • Exceeding the mileage allowance can be expensive
  • You will have to pay if you return the vehicle with excessive wear and tear.

Pros of PCH agreements

  • Potentially lower monthly payments than other finance options
  • No commitments to buy outright
  • You can get a new car more often.

Cons of PCH agreements

  • You won’t have any equity to carry over to a new car like you would with finance
  • Exceeding the mileage allowance can be expensive
  • You will have to pay if you return the vehicle with excessive wear and tear.

Alternatives to Personal Contract Hire

If you’re exploring the different car finance options, you should understand what’s available to you. This way, you can make the best decision for you and your financial situation.

Conditional Sale

Also known as CS car finance, Conditional Sale agreements help you spread the cost of a new vehicle to avoid paying a large deposit.

For the duration of the agreement, you will be the vehicle’s registered keeper and responsible for maintaining and servicing the car. Conditional Sale agreements usually last between two and five years, and once you pay your final monthly payment, you will own the vehicle outright.

Conditional Sale is the type of finance we offer at Moneybarn.

Hire Purchase (HP)

In a Hire Purchase agreement, you will be expected to pay a deposit (usually around 10% of the car’s value) and pay fixed monthly instalments, typically over an agreed period of one to five years).

At the end of the agreement, you will be offered the chance to pay the ‘option to purchase fee’ to buy the car outright. Alternatively, you can hand the car back and start a new HP agreement.

Unlike PCH agreements, there is no annual mileage limit, so you won’t incur any fees for driving over a specific mileage.

Personal Contract Purchase (PCP)

On a Personal Contract Purchase plan, you will pay a deposit and make monthly payments over a set period, typically two to four years. Once you’ve made your last payment, you have three options:

  1. Make the balloon payment to buy the car outright
  2. Return the car and start a new PCP deal
  3. Use any equity you have built up as a deposit for a new car.

On a PCP deal, you will have an annual mileage allowance to stick to and may be charged if you exceed it. You can also be charged if you return your car with excessive wear and tear. Many finance companies use the guidelines set out by the British Vehicle Rental and Leasing Association.

Personal loan

You can take out a personal loan from your bank or another lender to help fund the price of a new car. Paying with a loan will mean you own the vehicle from day one, but you will have to repay the loan in fixed monthly instalments over an agreed timeframe.

Unlike PCH, CS, HP, and PCP finance, when you buy a car with a personal loan, you are the legal owner, so you’ll have the freedom to use, modify, and sell it as you like.

Get your new car with Moneybarn

We specialise in car finance for people with bad credit, offering Conditional Sale agreements to eligible applicants. So, if other lenders have refused car finance in the past, we could help.

We’ve supported thousands of drivers across the UK onto a road to a better future. We’re proud to have over 30 years of experience helping people who have been let down by mainstream lenders.

Discover what your repayment schedule could look like with our car finance calculator. Then, when you’re ready, get a quote using our quick and easy form.

Representative 30.7% APR.

FAQs about Personal Contract Hire

No, on a Personal Contract Hire (PCH) agreement, you are leasing the car for a period usually between two and four years. At the end of the agreement, you give the car back with no option of buying it outright.

With a Hire Purchase (HP) agreement, you pay a deposit of around 10% of the car’s value and then make monthly payments over an agreed term. At the end of this timeframe, you can pay an ‘option to purchase’ fee to buy the vehicle outright or start a new HP agreement.

Additionally, on a PCH plan, you must adhere to a mileage allowance, but this rule does not generally apply to HP agreements.

Although they’re two of the most common types of car leasing agreements, it’s easy to get PCH and PCP finance confused.

The main difference between PCH and PCP contracts is what happens at the end of the agreement. Under a PCP deal, you have the option of making a final balloon payment at the end of the contract to become the car’s legal owner. With a PCH deal, there is no option to buy the vehicle outright and you must return it to the dealership or finance provider.

At the end of the PCH agreement, you will return the car to the finance company or dealership you leased it from. If you have covered excess mileage or breached the agreement’s fair wear and tear rules, you could have to pay further charges to cover this.

You cannot sell a car on a PCH plan. Only the vehicle’s legal owner can sell it, and on a PCH plan, this will be the finance company or dealership that you entered into an agreement with. For more information, read our in-depth guide on selling a car with outstanding finance.

Alternatives to Personal Contract Hire

If you’re exploring the different car finance options, you should understand what’s available to you. This way, you can make the best decision for you and your financial situation.

Conditional Sale

Also known as CS car finance, Conditional Sale agreements help you spread the cost of a new vehicle to avoid paying a large deposit.

For the duration of the agreement, you will be the vehicle’s registered keeper and responsible for maintaining and servicing the car. Conditional Sale agreements usually last between two and five years, and once you pay your final monthly payment, you will own the vehicle outright.

Conditional Sale is the type of finance we offer at Moneybarn.

Hire Purchase (HP)

In a Hire Purchase agreement, you will be expected to pay a deposit (usually around 10% of the car’s value) and pay fixed monthly instalments, typically over an agreed period of one to five years).

At the end of the agreement, you will be offered the chance to pay the ‘option to purchase fee’ to buy the car outright. Alternatively, you can hand the car back and start a new HP agreement.

Unlike PCH agreements, there is no annual mileage limit, so you won’t incur any fees for driving over a specific mileage.

Personal Contract Purchase (PCP)

On a Personal Contract Purchase plan, you will pay a deposit and make monthly payments over a set period, typically two to four years. Once you’ve made your last payment, you have three options:

  1. Make the balloon payment to buy the car outright
  2. Return the car and start a new PCP deal
  3. Use any equity you have built up as a deposit for a new car.

On a PCP deal, you will have an annual mileage allowance to stick to and may be charged if you exceed it. You can also be charged if you return your car with excessive wear and tear. Many finance companies use the guidelines set out by the British Vehicle Rental and Leasing Association.

Personal loan

You can take out a personal loan from your bank or another lender to help fund the price of a new car. Paying with a loan will mean you own the vehicle from day one, but you will have to repay the loan in fixed monthly instalments over an agreed timeframe.

Unlike PCH, CS, HP, and PCP finance, when you buy a car with a personal loan, you are the legal owner, so you’ll have the freedom to use, modify, and sell it as you like.

Get your new car with Moneybarn

We specialise in car finance for people with bad credit, offering Conditional Sale agreements to eligible applicants. So, if other lenders have refused car finance in the past, we could help.

We’ve supported thousands of drivers across the UK onto a road to a better future. We’re proud to have over 30 years of experience helping people who have been let down by mainstream lenders.

Discover what your repayment schedule could look like with our car finance calculator. Then, when you’re ready, get a quote using our quick and easy form.

Representative 30.7% APR.

FAQs about Personal Contract Hire

No, on a Personal Contract Hire (PCH) agreement, you are leasing the car for a period usually between two and four years. At the end of the agreement, you give the car back with no option of buying it outright.

With a Hire Purchase (HP) agreement, you pay a deposit of around 10% of the car’s value and then make monthly payments over an agreed term. At the end of this timeframe, you can pay an ‘option to purchase’ fee to buy the vehicle outright or start a new HP agreement.

Additionally, on a PCH plan, you must adhere to a mileage allowance, but this rule does not generally apply to HP agreements.

Although they’re two of the most common types of car leasing agreements, it’s easy to get PCH and PCP finance confused.

The main difference between PCH and PCP contracts is what happens at the end of the agreement. Under a PCP deal, you have the option of making a final balloon payment at the end of the contract to become the car’s legal owner. With a PCH deal, there is no option to buy the vehicle outright and you must return it to the dealership or finance provider.

At the end of the PCH agreement, you will return the car to the finance company or dealership you leased it from. If you have covered excess mileage or breached the agreement’s fair wear and tear rules, you could have to pay further charges to cover this.

You cannot sell a car on a PCH plan. Only the vehicle’s legal owner can sell it, and on a PCH plan, this will be the finance company or dealership that you entered into an agreement with. For more information, read our in-depth guide on selling a car with outstanding finance.

Should you lease or buy?

Leasing is quite different from financing a car. We’ve written a guide that breaks down the differences in more detail, so you can understand what’s best for you.

Should you lease or buy?

What do you need to apply?

We don’t offer leasing, we offer Conditional Sale finance. You might be wondering what you need to apply for vehicle finance. Click the button below to find out more.

What do you need to apply?

Our application process

We offer CS finance, which means you own the vehicle at the end of the agreement. Find out more about our application process by clicking below.

Our application process

For a better road ahead

Moneybarn is a member of the Finance and Leasing Association, the official trade organisation of the motor finance industry. The FLA promotes best practice in the motor finance industry for lending and leasing to consumers and businesses.

Moneybarn is the trading style of Moneybarn No. 1 Limited, a company registered in England and Wales with company number 04496573, and Moneybarn Limited, a company registered in England and Wales with company number 02766324. The registered address for these companies is: Athena House, Bedford Road, Petersfield, Hampshire, GU32 3LJ.

Moneybarn’s VAT registration number is 180 5559 52.

Moneybarn Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702781)

Moneybarn No. 1 Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702780)

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