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What Is Personal Car Leasing?

What Is Personal Car Leasing & How Does It Work?

Personal car leasing is an agreement made between yourself and the car dealership to pay for your new or used car over a set period of time, which maybe 12-60 months typically.

Sometimes you have to pay an intital deposit on the car you wish to lease, or you may get a deal with the car dealership where this is free of charge.

There are 4 main types of personal car leasing and finance options available to consumers and this can be confusing, especially if you have never leased a car before. So we will explain and guide you through the 4 main types of personal car leasing below.

New Car Deal specialise in personal contract hire and personal car purchase and you can find all our deals on our website - so if you spot a personal car leasing deal which catches your eye get in touch!

Personal Contract Hire

Personal Contract Hire or (PCH) allows you to lease a car at a fixed monthly fee. This fixed monthly fee is based on the expected depreciation of the car over the lease period vs it's current value. So if you choose a car which keeps its value then your monthly costs will be much lower.

Personal Contract Hire tends to require a smaller deposit than other car financing agreements and in some cases no deposit at all.

These monthly payments may also include added bonuses or benefits such as free road tax, free insurance or free servicing. This depends on what special offers the car dealerships have at the time, so it is always a good idea to shop arond to get the best personal car leasing deal.

With Personal Contract Hire you do not own the car at the end of the agreement, usually after 3 years you give the car back. Should you wish to carry on using this type of hire purchase to finanace your car then you can simply choose a brand new car model and start on a new hire package deal with the dealership.

This way you can get a brand new car every 3 years and be the envy of your friends - the downside is that you are only renting the car and never have the chance to own it, so don't get too attached to it.

Personal Contract Purchase

Personal Contract Purchase (PCP) works in a very similar way to PCH, but at the end of your finance agreement you have the option to purchase the vehicle.

With Personal Contract Purchase you pay an initial deposit, which maybe several thousand pounds based on the value of the car, and then follow this up with a fixed monthly payment. Then after the agreement has ended which maybe after 36-60 months you have the option of a final "balloon payment" based on the current car's value.

Alternatively if you did not want to purchase the car you can simply hand it back or exchange it for a new model and start the process again.

The benefit of Personal Contact Purchase agreements is that the value of the car is pre-determinded when you take out the plan, so you know exactly how much it will be worth and exactly how much you will have to pay at the end to own it.

This means you can see if you wish to keep the car or not, and also gives you time to save up enough money to cover the final balloon payment.

However Personal Contract Hire is more expensive than PCH, and most of these deals have mileage restrictions in place (usually 8000 miles per annum), and if you go over these allowances then you have to pay penalty fees.

Hire Purchase (HP)

Hire purchase is a very common way to purchase a new car and works similar to buying a house; you put down a deposit on the car and then pay a fixed monthly fee until the balance + interest is paid off.

This can be a great way to purchase a brand new car if you can not afford the whole balance up front but know you can afford the monthly repayments.

Interest will be applied in most cases to the personal hire purchase agreement which makes the car more expensive over the term of the agreement so you have to take this in to concideration when looking at this form of car financing.

In most cases you can pay off the hire purchase agreement early, which means you save on the interest payments, so if you know you do can this then again it is a good way to purchase a new car. However if you get in to financial trouble and then can not afford to keep up the repayments on your car finance agreement you could have the car taken off you and you will lose the money you already paid.

Lease Purchase (LP)

A lease purchase agreement is very simailar to personal contract purchase but you will own the car at the end of the agreement once you have paid off the final balloon payment in full.

The only difference with lease purchase over personal conttract purchase is that the final balloon payment is compulsary.

The difference between hire purchase and lease purchase is that with hire purchase you are paying off the balance of the car's price on the day you purchase. With lease purchae the depreciation is taken into account and you only pay the final payment based on the value of the car at that specific time - which is often lower so you can get a better deal.

You can also generally settle your agreement off early and avoid paying further interest or monthly bills.

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Posted on 16th May 2018 at 1:08 PM

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