Leasing a car: the benefits and pitfalls - The private buyer's options

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There are two main options for private buyers – Personal Contract Hire (PCH) and Personal Contract Purchase (PCP).

Personal Contract Hire is an agreement between an individual and a car leasing company. It will cover use of the car for a set period of time and set mileage, in exchange for a set monthly fee.

Usually, the car will be returned to the lease company at the end of a PCH agreement. This has the benefit of you not having to find a buyer, but you will have to pay charges made for any damage and additional mileage to that agreed.

PCH usually includes road tax being paid for by the leasing agent and also has VAT benefits (see 'Financial implications').

Personal Contract Purchase is a way of funding a vehicle through fixed monthly payments over a set period of time and mileage. The main difference is that at the end of the lease term the motorist has the option of buying the car.

If you choose to buy the car, this final payment is called the Balloon Payment. The amount is agreed before the lease is even signed and is equivalent to the minimum projected cost of the car at the end of the contract.

Both can be supplemented by a maintenance package that covers the cost of all repairs in exchange for a set monthly fee, but in practice these deals tend to suit people taking out PCPs more.

GAP insurance offer in association with What Car?


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