PCP or PCH: Which is best for you?

If you're choosing you're next personal car, two of the most common finance options are PCP and PCH - both spread the cost, and both can look attractive - but which do you choose?

Both PCP's and PCH have their place, but are different products providing different potential benefits and shortcomings and before you choose it's worth remembering - the best option isn't necessarily just the one with the lowest monthly payment - it's the one that best fits your own personal priorities, your usage and future plans. 

What's the difference?

• A PCP [Personal Contract Purchase ] gives your some flexibility and the option to own the vehicle at the end of the agreement. You make an upfront payment - either from your own funds or a part exchange and there may be a deposit contribution from the manufacuturer - you then make monthly payment and a portion of the finance is deferred to the end of the agreement by way of a guaranteed future value [ calculated based on your mileage and length of the agreement ].
• At the end of the agreement you can pay the guaranteed future value to own the vehicle ... simply hand it back if the car isn't worth the final payment or part-exchange it and put any equity [ the difference between the car's value and the final payment ]  into the next agreement. You can also potentially change your vehicle early if the value of your car is sufficient to cover the finance settlement figure at that time. 

• PCH [ Personal Contract Hire ] is a lease - you are effectively agreeing to hire the vehicle for an agreed period. You pay an initial rental [ usually on delivery ] and then a fixed monthly rental until the end of the agreement at which point you simply return the car and choose another one. Your rentals are calculated based on the price the leasing company pays for the vehicle, the length of contract and mileage you intend to cover.
• There is no ownership option and you can't part-exchange or change your vehicle early - most early terminations cost around 50% of the remaining rentals. 

For both options the vehicle must be in good condition, free from damage and within the contracted mileage to avoid paying penalties to the finance company [ for PCH see our Fair Wear and Tear Guide ] 

Costs, discounts and hidden factors

Whilst we have already said that the best option isn't just the one with the lowest monthly payments it is a key factor to consider and centre of focus when budgeting or considering options - what goes in to the creating that monthly payment and how much you pay in total over the duration of the contract is the detail that will really inform your decision. 

• Discounts: Leasing companies will more often access bigger upfront discounts from dealers and manufacturers - especially on special offer PCH deals. Bear in mind that these usually apply to standard specifications of the model or derivative and are usually fixed to selected colours and timescales. 
• Deposit Contributions: PCP deposit contributions or lower rate finance offers are alternative ways for manufacturers to offer discount - it helps to bridge the gap with leasing company discounts but it all comes from the same margin as cheap finance has to be subsidised somehow. 
• Are you already leasing? If you have always had a PCP but never keep the car at the end of the agreement you are effectively leasing already so it is really worth comparing the two side by side - how much might you be paying for the option to own a vehicle you're realistically ever going to own? 
• In contract costs: you can add service plans to a PCP and maintenance agreements to a PCH for more control of your costs - but worth considering that a PCH includes annual road fund licence renewal for the duration of the agreement and with a PCP this is an annual cost personally - if your car has a retail value of more than £40k when registered you will be paying £620 each year [ equivalent to £50 monthly ] based on the current rates of £195 annual RFL and £425 expensive car supplement. 
• Upfront / advance payments: Consider large deposits or advance rentals very carefully - if you put in £10000 or 12 advance rentals now where will it come from for the next agreeement? 

Check your offered trade-in value either at the end of your PCP or if trying to change your car early with independant on line buy-sites such as webuyanycar and motor way - if the dealers valuation is significantly higher or appears "too good" they may using potential new-car discount to make your current car appear to be worth more. 

Before you decide - a curveball 

If you're considering an electric it makes good sense to utilise a solution that protects and removes the uncertainty of the future residual value by either a PCP or PCH - but if you are employed and either a basic or higher rate tax payer there is another way - and in almost all situations it delivers significant savings on the net monthly cost over a PCP and PCH - an electric car scheme via salary sacrifice. 

If you have a scheme at your employers speak to HR or employee benefits about how to access it - if you don't, click on the banner below for more information on how it works - and how easy it could be to implement a scheme at your work place. 

Final thought

If ownership matters and flexibility is key, PCP works - but do the calculations [ don't forget the RFL renewals ] and see if these factors cost more, and if they do,  you can decide if they're worth it.

If simplicity, low effort and fixed costs matter then PCH is a good fit - but remember the contract is fixed and to get out early could be costly. 

For electric vehicles add salary sacrifice into the mix which includes full maintenance and fully comprehensive insurance. 

Once you have all the numbers and details you can confidently consider and decide which one is best suited to your own personal needs. 

NEV Leasing can provide help, guidance and impartial information on every aspect of your next new vehicle - including the true value of your current one - giving you all the detail and confidence you need to help you make the best decision for you personally. 

To speak to us or find out how we can help, call us on 01206 585837 ... email getintouch@nevleasing.com or complete the call back form to arrange a call at a time convenient for you.