Leasing, personal contract hire, personal contract purchase, hp and conditional sale explained. which car leasing option is best for you? what are the pros and cons of each type of car leasing?
Leasing is becoming an increasingly popular method of running a car. like a long-term car rental agreement, you pay a monthly fee to use a car for a fixed period and mileage. at the end you simply hand back the car to the leasing company.
Personal contract hire
Fixed monthly payments are calculated based on the vehicle’s expected depreciation – the difference between the purchase price and the resale value at the end of the agreement, taking into account age and mileage. The better a car holds its value, the lower your payments will be, which could make it possible to lease a more prestigious car than you would have bought.
Personal contract purchase (pcp)
If the thought of handing back the car at the end of a lease rankles, a pcp offers you the option to buy it. You’ll pay a deposit, followed by low monthly payments for the remainder of the contract. A minimum guaranteed future value (mgfv) is also calculated. also known as a balloon payment, this is the amount you’ll have to pay to take ownership of the car at the end of the lease. Alternatively you can part-exchange the car for a new model. If it’s worth more than the mgfv, you get the higher amount as a deposit on the next car, if it’s worth less, you still get the mgfv. The third option is to simply hand the car back to the leasing company. agreements can include maintenance of the car.
Hire purchase (hp) and conditional sale
Hire purchase (hp) is a simple way to finance a new car. you pay a deposit followed by monthly payments while you use the car. Only when the full cost has been met do you take ownership. The cost is based on the price of the car, the size of your deposit and number of instalments.