Leasing a car with Personal Contract Hire (PCH)

Personal Contract Hire (PCH) is a way to rent (lease) a car for a few years.  

You’ll agree a contract length and make fixed monthly payments. You’ll also need to pay an upfront fee and most running costs, like insurance and fuel. 

You’ll be limited on how many miles you can drive the car, and will get a penalty if you go over this limit (or cause any other damage to the car). 

There usually won’t be any option to buy the car, and you’ll return it to the dealer once your contract ends. 

You’ll usually need to pass a credit check when you lease a car.  

You’ll make a larger payment at the start of your agreement. This is usually equal to between three and six months of payments. 

Some dealers will tempt you with low monthly payments, but a big deposit. Work out exactly what you’ll pay to check if this still gives you a good deal. 

You’ll agree a monthly payment cost based on: 

• the value of the car you’re hiring
• the amount you’re paying in upfront fees 
• the mileage allowance, and 
• the length of your contract.  

A longer contract can reduce monthly costs, but the car will lose value over time. Think about whether you’ll still be happy with your deal five years into a contract – if not, you might find yourself stuck in a deal that doesn’t feel like good value anymore. 

If you’re looking to lower your monthly costs, you might find that leasing a less expensive car on a shorter contract is a better option. 

Although your dealer is the car’s owner, you’ll be responsible for: 

• insurance 
• fuel 
• servicing costs 
• any parking or speeding tickets (the dealer will pass these onto you). 

Make sure you budget for all of these. Some dealers will offer insurance as part of your agreement, but you might get a better deal elsewhere. 

You’ll usually be responsible for any repairs and maintenance needed for your leased car, unless this is included in your lease agreement. 

It’s important to ask your dealer: 

• who will be responsible for any minor repairs 
• who will pay for any major damage 
• what condition they’ll expect the car to be in at the end of the lease. 

Most dealers will expect some wear and tear by the end of your lease, but will charge for any damage that goes beyond this. Make sure you know what they’ll be looking for when you hand the car back. 

Sometimes even scratches on hubcaps or from pets can be seen as damage by dealers. There’s a helpful guide to fair wear and tear from the British Vehicle Rental and Leasing Association (BVRLA)Opens in a new window, or you can order a hard copyOpens in a new window

When you agree a lease, you’ll be set a limit on how many miles your car is allowed to do each year.  

You can negotiate this, but a higher mileage allowance will mean higher monthly payments. This is because your car will be less valuable if it has more miles on it when you reach the end of your lease. 

It’s worth spending a bit of time to work out what your mileage will be. If it’s too high, you’ll be paying more than you need to.  

But if it’s too low and you go over your mileage, you'll usually face a penalty. These can get expensive if you’re not careful, so be sure to check your contract. 

Like all deals, leasing comes with pros and cons. Whether it’s the right deal depends on the kind of car you need, and your own money situation. 

A car club is another way of hiring a car. You’ll pay a membership fee, and then you’ll be able to hire cars when you need them. 

You’re only charged for the time you use a car. So, if you only need a car every now and then, this might work out as a cheaper deal. 

The car club also takes care of fuel, insurance and maintenance. However, some car clubs will have tight limits on mileage – so regular long-distance trips might work out more expensive overall. 

Check if there are car clubs in your local area to see if this is an option, and how much it would cost. 

Car subscriptions are slightly different to car clubs. You’ll choose a car and pay a monthly fee, sometimes with no deposit needed up front. These deals are usually more short-term than a PCH, and sometimes let you change your car every few months. 

A car subscription will usually be easier to change or cancel, but the monthly payments are often more expensive than PCH. You can compare car subscription dealsOpens in a new window to see if this option would work for you.

If you have enough savings to be able to buy a car with cash, this will usually be your best option. You’ll pay no interest and will immediately own the car. 

It’s important to still have some money aside for emergencies. View our guide Emergency savings – how much is enough. 

A Personal Contract Payment (PCP) is another type of car finance. You’ll:  

• put down a deposit
• make monthly payments, and then
• have the option to make a final large ‘balloon payment’ at the end of your contract.

These monthly payments are usually higher than a lease, but you’ll be putting money towards owning the car. However, you have to pay the balloon payment at the end to buy the car outright, which a lot of people don’t do.

A Hire Purchase is another way of buying a car outright. You’ll put down a deposit and make monthly payments to cover the value of the rest of the car. 

These monthly payments will usually be higher than both a lease and a PCP, but you’ll be putting money towards owning the car, and won’t have a balloon payment to make at the end. 

You could also consider getting a personal loan to pay for a car outright. 

With a loan you’ll be able to buy the car and own it from day one, but your monthly repayments will probably be higher than a lease. 

If you’re thinking of leasing a car, remember to look at a few different comparison sites such as leasing.comOpens in a new window. You can find more comparison sites to compare deals on: 

• MoneySavingExpertOpens in a new window 
• The Car ExpertOpens in a new window  

Make sure you’re comparing the overall cost (including deposit), and try different contract lengths to see if this can make your deal cheaper. 

If you need to hand the car back early, you’ll likely need to pay a ‘termination fee’. This can be a large penalty, so it’s best not to agree a lease if you think you’ll need to end it early.

It’s important to check your contract before starting your agreement to see whether ending the lease early is an option, and how much you’ll need to pay to do this.

Speak to your car finance company if you’re finding it difficult to keep up with your payments. 

They might be able to work out a solution, such as extending your lease to lower your monthly payments. 

Find out where you can get free debt advice.