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Explained - PCP vs Contract Hire - Which is Best for You?

Explained - PCP vs Contract Hire - Which is Best for You?

August 6th 2021

Thinking about investing in a new vehicle? Discover the differences between PCP and contract hire...

Many of us rely on a vehicle in our day-to-day lives, whether they’re used to drive to work, take children to school or run errands around town. If you’re thinking about investing in a new vehicle then there are many aspects to consider, but one of the most important things is how you’ll pay for it.

Few of us can afford to pay for the entire cost of a vehicle upfront but PCP and contract hire are two options that allow you to make monthly payments. Both are popular ways to finance a car, but what’s the difference? See below for our handy guide to help you decide whether lease or purchase is best for you.

What is PCP?

PCP stands for personal contract purchase and this method includes the option to own the car at the end of your contract. Customers choose a contract length (usually between 24 and 48 months) and make monthly payments. At the end of the contract, you can either return the car and start again, or make a final ‘balloon payment’ to take ownership of the vehicle.

Pros

PCP is a very popular way of buying a vehicle at the moment and many dealers offer additional incentives, such as a deposit contribution. Customers will typically pay less per month compared to an equivalent hire purchase contract, plus you have the opportunity to own the vehicle at the end.

The Guaranteed Minimum Future Value eliminates concerns about the car’s value at the end of the contract and some dealers offer servicing and warranty packages as part of the deal.

Cons

PCP contracts work on an agreed mileage allowance, and if you exceed it, you’ll be charged per mile. Charges vary dramatically, from a few pence up to 14p per mile or more. There’s also a risk that your circumstances may change and you won’t be able to afford the monthly payments, or the final balloon payment if you’d planned on buying the vehicle.

What is contract hire?

Contract hire is simply another name for leasing a vehicle. There is no ownership option and the car remains in the name of the company or manufacturer you're leasing from. Otherwise, the process is similar to PCP, you simply choose the desired contract length and make the monthly payments.

Pros

There are many contract hire benefits, including the fact that the dealership takes responsibility for the vehicle. This means that you won’t be liable if anything goes wrong and routine tax costs are included in the monthly payment. You can also pay a little extra and have all vehicle maintenance included in the price.

Cons

Like PCP, lease deals often come with excess mileage charges as well, so pay attention to your allowance. There’s also no option to own the vehicle and you could face charges if it isn’t kept in good condition. The BVRLA (British Vehicle Rental & Leasing Association) has published Fair Wear & Tear guidance for leasing companies and advice for leasing customers.

Thinking about contract hire? Get in touch with Driven Leasing for business leasing and personal contract hire deals. We’re proud to offer a wide range of cars and vans to suit your needs and all of our deals on new vehicles include free mainland UK delivery. We search the market to find you the best leasing deals available, so give us a call today or contact us online to find out more.

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