There are lots of different ways to get yourself a car. Personal contract hire is a method that allows you to have a car without owning it. It gets called a range of different things depending on where you look. You may see it referred to as a personal lease or simply as leasing. Leasing is very common in the US and is beginning to grow in popularity in the UK too.
What Exactly Is Personal Contract Hire?
Personal Contract hire is basically an agreement where you pay monthly for the use of a new car. You are basically renting it for a set amount of time. At the end of the contract, you give the vehicle back. Because you are not working towards owning the car, personal contract hire tends to have relatively low monthly payments.
Tip: Because you will not own the car at the end, this can be an expensive form of car finance. However, it is also one of the cheapest ways to get into a new car, especially top range models.
How Does Personal Contract Hire Work?
In a lot of ways, personal contract hire works a lot like renting a property. You start by paying a deposit. The deposit is usually the equivalent of around six months of payments. You then pay a set amount each month for an agreed period of time. Contracts are usually for one to four years although if you shop around you may find different options. Generally speaking, going for a longer-term contract will give you smaller monthly payments.
Once you have selected your car and got all the extras that you want, you will have to pay a processing fee. This is typically in the range of £150-£200.
As part of your contract, you will agree on a milage for the term of the contract. Take care when you agree to the limit as you will have to pay a fee for every mile you go over the agreed limit.
Some leasing deals will also include road tax and break down cover. If you are lucky, you might be able to get servicing included as well.
Tip: Check to see if the price includes VAT or not. A lot of these deals are aimed at businesses so the quote may exclude VAT.
What Happens At The End Of The Contract?
When the lease ends, there are two options. You can either return the car or you can extend your lease.
If you decide to hand the car back, then it will be checked over. As long as it is in good condition and you have not gone over the agreed mileage then there will be nothing more to pay. There will be a fee for every mile you go over the limit. This is usually somewhere between 5p and 10p per mile. However, for more expensive cars this fee can be even higher. If the vehicle is not in good enough condition to be sold then you may have to pay for repairs to any dents or scratches.
Tip: If you are interested in extending your lease, contact the finance company a couple of months before the end of the contract. You may be able to negotiate a lower monthly fee, as the car is now older.
What If You Want To Get Out Of The Agreement Early?
It will depend on your contract. In most cases, you will have the option to pay a termination fee to return the car before you get to the end of the lease. The size of the payment will probably depend on how much of the lease is left. The earlier you try to terminate, the higher the fee will be.
Tip: If you just stop paying it will affect your credit score. Try to plan out your finances, so you don’t have to pay to end the contract earlier.
What Are The Benefits Of Personal Contract Hire?
- This is the cheapest way to get access to a car, especially for top-end models.
- You don’t have to worry about road tax or breakdown cover.
- The car will be covered by the manufacturer’s warranty for the whole of the time you have it.
- The whole thing is very simple. You pay a single monthly fee to use the car and then hand it back at the end.
- You don’t have to worry about depreciation when you drive the car off.
- If you have a VAT registered business, you can claim the car as an expense and reclaim half of the VAT.
What Are The Negatives Of Personal Contract Hire?
- At no point will you own the car. You will also never have the option to buy the car.
- Even though you are putting money in every month, you will have nothing to show for it at the end of the contract term.
- If you have an accident and the car is written off, you may end up having to pay a fee to the finance company. This is to cover the difference between how much the insurance company and the finance company will value the car at.
- You have to be careful about your milage as you will have to pay if you go over the agreed limit.
- You have to pay extra to get exactly what you want.
Where Can You Get A Personal Contract Hire?
There are two options for finding a personal contract hire deal. You can arrange a contract directly at some dealerships. Not all dealerships offer this option as it is not widely used in the UK yet. The other option is to go through an online broker.
When you look for an online broker, make sure that they will work with private individuals as some will only work with businesses. The broker will match you to a leasing company who will buy the car. The broker will deliver the car once you make your first payment.
Tip: Take some time to look for average prices from a couple of online brokers before you talk to a dealership. That way you know if you’re getting a good deal or not.