Car leasing in the UK can be a fruitful and enjoyable experience. And you might not know it, but there are actually two popular ways of financing a car in the United Kingdom.
First, there is a personal contract hire (PCH). There’s also a personal contract purchase (PCP).
With PCH leasing, you can drive a new car every couple of years. You’ll also have relatively low monthly payments and you won’t need to worry about the resale value of the vehicle. PCP is similar except it gives you the chance to buy the car later on.
When you lease a vehicle, there are certain rules and restrictions involved. Luckily for you, we’re here to help. So keep on reading and we’ll walk you through everything that you need to know about leasing a car in the UK.
How Does Car Leasing in the UK Work?
Leasing a vehicle is basically a long-term rental. You pay a fixed monthly fee in order to use the vehicle for a certain amount of time and number of miles. You might have to undergo a credit check in order to secure an agreement.
To get out of your PCH deal early, you might not be able to just walk away from the contract. There are added costs to pay before you can leave that you didn’t budget for.
This can end up becoming an issue if you terminate the agreement because you can’t afford the payments any longer.
Car leasing can be extremely useful if you want to first test out a car before you buy it. This is especially true when it comes to premium car leasing.
How Do You Finance a Car with Personal Contract Hire (PCH)?
If you’re trying to lease a car for the long term and you don’t want to own it, then the cheapest option is going to be utilizing PCH.
With PCH, the lease agreement will last between two and five years. You’re going to have to undergo a credit check and you’ll have to pay around three months’ lease upfront.
During the term, you’ll never own the car and you’ll have to give it back at the end of the lease. Also, your monthly payments are probably going to be higher than if you leased the vehicle through PCP. However, the whole contract is likely going to cost you less with a PCH.
Sometimes, you’ll be able to get a maintenance package that will cover things like servicing and the annual car tax (road tax). You’ll also be limited on how many miles you can drive with the car.
How Much Do You Pay a Month for a PCH?
Your monthly payment is likely going to cost you more with a PCH than with a PCP. This is due to the fact that you’re leasing the vehicle based on the full amount of the car. With PCP, you’re just borrowing part of the value.
However, you’ll likely pay less with a PCP over time than with PCH.
With that said, each deal is going to be different. So it’s important that you shop around.
The Main Difference Between PCH and PCP
Both PCH and PCP allow you to lease a car. However, you also have the chance to purchase the vehicle and become its legal owner with a PCP lease.
In order to do this, you need to pay a ‘balloon payment’ at the end of the contract. This is referred to as the Guaranteed Minimum Future Value (GMFV). This is in addition to the monthly payments and the deposit.
With PCP, the amount of money that you pay in installments is based on how much depreciation the car will go through during the lease term.
If you don’t want to purchase the vehicle at the end of the contract, then you just give it back. As long as the car is in good condition and within the required mileage, you won’t need to pay any more money.
With both PCP and PCH, the lender can repossess your car. However, with PCP, after you paid at least one-third of the total amount, they won’t be able to repossess your car unless they have a court order.
How to Cancel a PCH Plan
If you cancel your PCH early, then you may need to pay off the lease costs in full. You want to think very carefully before you decide to terminate your agreement. You should find out exactly what your costs are going to be.
If you end up getting behind on your car payments, then you should talk to your finance company. They may be able to extend the length of your lease. Doing this would lower your monthly payments.
The Importance of Knowing About Car Leasing in the UK
Hopefully, after reading the above article, you now have a better idea of how car leasing in the UK works. As we can see, it’s important to understand the different kinds of leasing options available so that you can figure out which is going to be best for your situation. It’s important that you consider the possibility of buying the car after the lease is up when you’re deciding which leasing option you should go with.
Once you do that, you’ll be able to make more confident and educated financial decisions.
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