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PCH vs PCP: car finance explained

By Stephen Turvil | July 27, 2022

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Car finance explained: how Personal Contract Hire (PCH) and Personal Contract Purchase (PCP) work in 2022. These finance offers could help you pay for a car.

PCH vs PCP: car finance explained

Getting your dream car has never been easier thanks to the low cost, flexible, and easy to follow finance that is now widely available in the UK. Personal Contract Hire (PCH) and Personal Contract Purchase (PCP) are among the most popular options in 2022.

PCH car finance explained

PCH lets you lease a vehicle for a specified period. Often, the finance terms can be optimised to suit your personal preferences and circumstances. Example terms include the initial rental of £3,250. This is followed by monthly payments of £265, for 47 months. The total cost of the car is £15,705. There is also a mileage limit to consider. For this example, it is 8,000 per annum.

PCH car must be returned

At the end of the contract the car must be returned to the supplier. There is no option to purchase. At this point, there should be nothing else to pay. The exception is if the car has exceeded its mileage limit. You then pay a rate per mile. The car must also be in reasonable condition. Fair wear and tear is tolerated, but you may be charged if there is any excessive damage.

PCH damage clause

The damage clause ensures you have an incentive to care for the vehicle – even though you can never own it. In other words, it protects the supplier’s investment. This is necessary, as it wants to sell the car for as much as possible at the end of the contract.

PCP car finance explained

PCP lets you pick a car, optimise its finance to suit your circumstances, then either return or keep it at the end of the contract. Your first payment is the deposit. The supplier might make a contribution towards this cost. The deposit is followed by monthly payments for an agreed time. There is also a mileage limit.

PCP car can be kept or returned

At the end of the term you have three options. The first is to return the car then walk away. There are then no additional charges. This assumes the car has not exceeded its mileage allowance. There is a cost for every mile if it has. The car must also be in reasonable condition for its age and mileage to avoid further expenses. Normal wear and tear is accepted without comment.

PCP finance example

Customer deposit £5,800
Supplier deposit contribution £1,000
Total deposit £6,800
24 monthly payments £135.84
Optional final payment £10,324.32
Annual mileage allowence 8,000
Fixed interest rate per annum  3.05%
Representative APR 5,9%
Interest charges £1,349.48
Total cost of the vehicle £20,284.48

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