Understanding the Difference Between PCP and PCH
When choosing your next car, there are various ways to purchase it. Finance is the most common route, with the most popular type being personal contract purchase (PCP). But some buyers prefer the leasing option, with personal contract hire (PCH) being a favoured choice.
While PCP and PCH have similar names, they fundamentally serve different needs. The concepts are very similar, with customers making an upfront payment, followed by monthly payments. However, the key difference is ownership. PCP gives customers the option to own the car at the end of the agreement, while PCH does not – it's a form of long-term rental.
Here, we explain everything you need to know about PCP and PCH to help you make the right choice when it comes to financing your next car.
What is Personal Contract Purchase (PCP)?
PCP is one of the most popular ways of financing a car in the UK.
It's attractive because the monthly payments tend to be low, as the customer only pays off the car's predicted depreciation over the agreement (plus any interest agreed by the dealer), not the full purchase price like with HP (Hire Purchase). Moreover, as these payments are low, more expensive cars that would normally be out of reach could become more affordable.
PCP works very simply: the customer pays an initial deposit (normally 10 per cent of car's value), and then pays a fixed monthly amount over an agreed term (normally 24, 36 or 48 months).
At the end of the agreement, the customer is presented with a "balloon payment", or Guaranteed Future Value (GFV). This is the finance company’s estimate of what the car is worth at the end of the contract, and the customer then is presented with options. If the customers decides to pay the balloon payment they then own the car; if they don't pay the agreement is over and the car is returned. The car can also be part-exchanged for a new PCP agreement, using any equity towards the next deposit.
PCP could be an excellent choice for those who want low monthly payments, plus choice and flexibility.
What is Personal Contract Hire (PCH) / leasing?
PCH, or leasing, is rapidly becoming a very popular choice among consumers who want to drive a brand new car with relatively small outlay in comparison to buying a car outright.
Essentially, it's a long-term rental agreement, and is very similar to PCP. Customers choose their desired car, mileage limit and contract length (again, 24, 36 and 48 months are the norm), and an initial payment is then paid (often equivalent to three, six, nine or 12 monthly payments). After the initial payment is paid, the customer pays a fixed monthly amount every month until the end of the contract.
When the contract is up, the car is returned, subject to Fair Wear and Tear guidelines. There is no option to buy.
PCH can work for many people because it's a simple and cost-effective way to drive a brand new car with predictable monthly costs. Road tax (VED) and the manufacturer's warranty is also included in the price, giving extra peace of mind.
Key differences between PCP and PCH at a glance
Here, we highlight the major differences between PCP and PCH to help you make your decision on which form of finance route to take.
| Feature | PCP (Personal Contract Purchase) |
PCH (Personal Contract Hire/Leasing) |
| Ownership | Option to purchase at end of agreement | No option to purchase at end of agreement |
| Monthly payments | Fixed, usually higher than PCH | Fixed, usually lower than PCP |
| Upfront cost | Flexible deposit, usually 10% of car's value |
Initial payment, usually 3,6,9, or 12 months up front |
| End of contract | Buy (pay GFV), return, or part-exchange | Return only |
| Early termination | Possible but subject to early termination changes | Possible but subject to early termination charges |
| Mileage & damage | Limits can apply when returning | Limits apply under the Fair Wear and Tear guidelines |
Which option is right for you?
Choosing PCP or PCH depends on a variety of factors, and you need to give some careful thought about which is right for you. Essentially, though, the main reason why you would choose one over the other will come down to how you use your car, how long you want to keep it, and whether owning a car matters to you.
Choose PCP if:
- You want to have the option of owning the car at the end of the contract.
- You like having the very latest car every two to four years.
- You know exactly how miles you will be doing every year.
- You are budget conscious, or have a fixed amount of money you want/have to spend every month
In summary, PCP could be ideal for those who prioritise flexibility and lower month outgoings, and want to drive the latest car, with an option to buy that car outright in the future.
Choose PCH/leasing if:
- You want lower month outgoings.
- You want the very latest car.
- You don't want to worry about depreciation.
- You want predictable, fixed monthly costs
- You enjoy flexibility and never want to own the car.
PCH is perfect for those who want to drive the very latest cars with the latest safety and technology features. It could be ideal for drivers who do not want to be weighed down in a long-term financial agreement, and don't want to own a car.
Conclusion
PCP and PCH may be very similar acronyms, but they are for different customers and service fundamentally different needs.
They are both suitable for those who want to drive the very latest cars on a fixed budget, but there is one major difference – ownership. While PCP gives the customer the opportunity to purchase the car at the end of the agreement, this option is never on the table with PCH as it's essentially a long-term rental contract.
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FAQs
It depends on your personal circumstance. You may choose PCP if you want the option to own the car at the end. Or you might choose leasing if you want lower monthly costs and no worries about selling or depreciation.
With PCP, you usually have 3 options at the end of the agreement – pay the optional final payment to keep the car, return it, or part-exchange it, subject to the terms of your contract. With leasing, the vehicle is returned at the end of the agreement, in line with mileage limits and fair wear and tear guidelines.
Leasing can offer lower monthly payments than PCP in many cases, but this is not guaranteed. PCP monthly costs may be higher, as they include the option to buy the car at the end of the agreement. Costs vary depending on the vehicle, contract length and terms.