What is PCH (Personal Contract Hire)?

The Facts

PCH is a fixed term rental agreement with one end of contract option. With PCH, the only option at the end of the contract is to hand the vehicle back to the lender. So how does it work? The agreement can be broken down into three main parts:

1. The Initial Rental

You may hear this incorrectly referred to as a deposit). Typically, this amount is open to negotiation. The lender would generally look for an initial rental equal to three, six or nine monthly rentals but can be as little as one month’s rental. However, please remember the amount of your initial rental influences the amount of your monthly rental.

2. Monthly Rentals

The amount is based on how much the lender predicts the vehicle will lose in value during the agreement. This loss is calculated by considering the term of the agreement and the mileage that you expect to cover, less your initial rental. You will pay this amount off during the period of the agreement, plus any interest applied by the lender. Vehicle Excise Duty, commonly known as Road Tax, is normally included for the duration of the contract.

3. Hand the Vehicle Back

As the vehicle is the property of the lender, the only option now is to return the vehicle. However, some lenders may allow you to extend the agreement for a period of time.

What happens when you hand back the vehicle?

This is where any damage identified that falls outside of the lender’s fair wear and tear policy will become chargeable to you. At the same time, they will check to see if you have exceeded the agreed mileage, if this is the case, excess mileage charges will also be applied, these charges are based on a pence per mile basis and would have been set out in your quotation and agreement.

When deciding if a PCH arrangement is right for you, the main principles to consider are:

  • The primary use of the vehicle and what wear and tear might occur
  • You need to know your expected annual mileage
  • You will not have an ownership option

With these principles in mind, it can be a very simple way of using a vehicle with minimal risk to you. To summarise, it’s a contract allowing you to select the vehicle your monthly budget allows, with no risk regarding the vehicle’s future value.

Note, if you settle a PCH agreement early, you will be charged a percentage on the outstanding rentals, this could be up to 100%.

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