Personal Contract Hire

Meaning and Definition

Personal Contract Hire (PCH), also known as car leasing, is a car finance option where an individual (the lessee) enters into a contract with a leasing company (the lessor) to use a vehicle for an agreed-upon period. In a PCH agreement, the lessee pays fixed monthly rentals for the use of the vehicle but does not own the vehicle at any point. At the end of the contract term, the lessee returns the vehicle to the lessor, subject to mileage and condition restrictions.

Why it is important to know

Understanding Personal Contract Hire is important for individuals looking for a flexible and hassle-free way to use a vehicle without the responsibilities of ownership. PCH offers the convenience of using a new vehicle without the long-term commitment or the need to sell the vehicle afterward. It can be an attractive option for individuals who prefer to have predictable monthly costs and enjoy driving a new car every few years. It is important for individuals considering PCH to review the terms and conditions of the agreement, including mileage limits, maintenance responsibilities, and any potential additional charges at the end of the contract.

Example in car finance

Suppose an individual decides to lease a car through a Personal Contract Hire agreement. They choose a three-year lease term and a specific model of car. The agreement states that the individual will make fixed monthly rental payments of £300. The individual enjoys driving the vehicle for three years and returns it to the lessor at the end of the lease term. They are not responsible for selling the vehicle or worrying about its depreciation. The leasing company assesses the returned vehicle for any excess mileage or damage beyond normal wear and tear, and the individual is not responsible for the vehicle's future value or resale.