PCP vs PCH: Which is right for me?

Many drivers opt to pay for their car in instalments – it can make a lot of sense to spread the cost for a better car.
When it comes to making monthly payments for a vehicle, the most popular options are PCP (Personal Contract Purchase) and PCH (Personal Contract Hire, also known as car leasing). • Personal Contract Purchase (PCP) is a finance agreement that gives you the option to purchase the car at the end of the contract or hand it back. • Personal Contract Hire (PCH), better known as car leasing, is a long-term hire and you’ll hand the car back at the end of the contract. Whether you want to own the car is a key decision to make, but there are advantages and drawbacks to both.

For how they compare to each other, just pick a category:
• Cost and contract fees • Choice of car • Flexibility of contract • Mileage allowance • Car maintenance • Do I own the car? • Which finance option is right for me? • Learn more about PCP or PCH

Knowing you can afford the monthly payments is essential for both PCP and PCH. Always check the small print of your contract for any additional fees or potential fines, so you know how much money is going out each month.

PCP Costs:

Monthly payments usually cover the depreciation of the car during the contract period, called the Guaranteed Minimum Future Value (GMFV). Monthly payments can be low, but you will have to save up for a balloon payment (a final, larger payment made at the end of a contract), before you take ownership of the car. Interest is often charged on the amount you borrow, typically between 4% and 7%, though 0% finance deals are sometimes available. You may also pay a deposit and other additional fees, so the total cost of a PCP contract tends to be higher than PCH in the long term.

PCH costs:

Generally, PCH costs can be lower monthly compared to PCP since you're not paying towards ownership. An initial deposit is usually required at the start. This payment can vary from the equivalent of one month to twelve months’ worth, but the smaller the initial rental you make, the higher the monthly instalments will be. Monthly payments are fixed for the contract duration and can include some additional costs like servicing and road tax.

Do I need a deposit for PCP?

The size of the deposit, and whether you need one, varies depending on the provider. Most providers ask for around 10% as a deposit of the car’s price.

Do I need a deposit for PCH?

An initial rental payment is required, which can be the equivalent to anything between one months of lease payments or twelve months of lease payment.

With PCP contracts, your monthly payments cover the difference between the car’s original price when new, and what it’s forecast to be worth at the end of your contract. The forecast called the Guaranteed Future Value (GFV).
You’ll normally pay interest on this value, typically anything between 4% and 7% although 0% finance deals are available in some instances.

Payments are fixed for an agreed period and mileage. Maintenance packages can be included for an extra cost, but you should shop around to see if you could save money with a package deal like this or arranging your own deals separately.

Yes, to buy the car, you need to make a final balloon payment. The amount can vary from a few hundred to a couple of thousand pounds. There may also be a purchase fee, which could be up to £500.
If you choose not to buy the car, you can return it, but may incur charges if the car exceeds mileage limits or has damage.

No final payment is required, as you can’t keep the car.
You’ll face fees if you exceed the mileage allowance or the car is damaged, otherwise you can simply hand it back and choose your next vehicle.

Today you can browse through over 300,000 cars available on finance ranging from the likes of a nippy Renault Clio to the luxurious Volvo XC90.

Auto Trader currently list thousands of car lease deals on site, covering 94% of all brands and featuring everything from Mercedes to Tesla.

Both PCP and PCH contracts contain strict terms and conditions, so it’s important you check the fine print before you sign. With some lenders, you may be able to negotiate contract length and add-ons like maintenance packages.

PCP contract flexibility:

• Typically lasts 2-4 years. • At the end, you can buy, return, or part-exchange the car. • Early termination is sometimes possible by paying the difference between the car’s value and the amount owed.

PCH contract flexibility:

• Typically lasts 2-5 years. • Early termination is more restricted and can incur significant fees. • Generally prohibits car modifications and may require permission for taking the car abroad.

PCP contracts tend to last two to four years, after which you have the options to buy, return or part-exchange the car and is therefore more flexible than a PCH contract. Generally, a longer contract results in lower monthly payments as the cost is spread. If your contract lasts longer than three years on a new car, you’ll need to factor in the cost of an MOT.

PCH contracts tend to last two to five years, after which you return the car. In some instances, you can extend the lease contract, but this is at the discretion of the lender.

Most PCP contracts are fixed, but there are options to end your plan early by paying off the difference between the value of the car and how much you owe.
To end your deal early, you’ll need to have paid at least half the value of the vehicle. If you haven’t, you’ll have to pay the difference. You may also be charged for repair costs if the car is in poor condition. If you can’t keep up payment, and have already made half your payments, you have the right to cancel your contract (voluntary termination) under the Consumer Credit Act.

You’re generally tied in for the duration of your contract. Changing or stopping your PCH / lease agreements may result in additional charges, so these may need factoring into your budget.
As you’ll never own a PCH car, the contract may prohibit you from modifying the car and you may find you aren’t allowed to take it abroad without written permission.

You’ll have a mileage limit on both PCP and PCH contracts. Going over this limit can result in extra fees, so it pays to work out your average mileage and set a limit that works for you.

Setting a monthly mileage helps the provider work out how much wear and tear the car will have, and in turn how much the car will be worth at the end of the contract. This is used to set monthly payments.
A higher mileage will result in more wear and tear, and so the car will be worth less at the end of the contract, so your monthly payments are likely to be higher. If you go over the mileage agreed in the contract, costs may apply. If you go over the mileage agreed in the contract, costs may apply – usually around 10p per extra mile.

Mileage allowance is an important factor in PCH contracts as you’re only leasing the car, it doesn’t belong to you.
The mileage limit will affect how much you pay each month, with lower limits normally being cheaper than higher mileage. If you go over your mileage allowance, you could face extra charges. Check with your lease provider when looking at finance quotes on all excess mileage charges.

Cars bought on PCP and PCH contracts will have pretty strict maintenance terms. As you don’t legally own the car while you’re making monthly payments, you have to keep it in good condition. This includes regular servicing.

• Your PCP car’s Guaranteed Minimum Future Value (GMFV) is partly based on you returning it with a full manufacturer service history, so proper maintenance and servicing is important.
• Some contracts require regular servicing by approved providers, and missing them or using a non-approved provider can result in penalties.

• Maintenance packages are usually offered by leasing firms and are charged on top of your monthly leasing payment.
• The level of maintenance coverage varies, but most tend to cover repairs and replacements caused by fair wear and tear (like new tyres, brakes, and exhausts) and breakdown cover. • Check the terms and conditions of a contract to see what is classed as fair wear and tear, as accidental damage (even minor) usually isn’t covered. Learn more about car lease maintenance packages.

With PCP, you have the option to own the car after making all payments and the final balloon payment.
You could also trade it in for a new car on a new PCP contract. They’ll deduct what its worth at the end of contract (the GFV) from your new contract. Just note that if your car is below the GMFV (due to damage or excess mileage, for example) you may have to repay the difference yourself. PCH is more limiting in this respect, as it’s never an asset you own. You don’t have the option to buy the car or sell it once you’re done. You have to make your monthly payments and then hand it back.

There’s no one-size-fits-all answer. Consider your monthly budget, long-term goals, and personal preferences, and take the time to properly research your options.

You can learn more about PCP finance deals in our guide.
Find car finance deals, including PCP, on Auto Trader.

You can learn more about PCH car leasing here.
Find car leasing deals on Auto Trader.