Car finance: PCP and PCH pose little risk

Martin Brown discusses how PCP and PCH provide greater choice, more flexibility and little risk. 

We have seen some confusing articles in the press recently about PCP (Personal Contract Purchase) and PCH (Personal Contract Hire) describing them as bad news for car buyers.

However, we believe they provide greater choice, more flexibility and little risk.

A PCP is a purchase agreement, with a deposit at the front end and a guaranteed future value on the car.

The buyer pays monthly amounts that cover depreciation and any finance costs to the guaranteed future value.

There is no requirement to pay the full price from the start, unlike hire purchase, so monthly repayments are therefore significantly lower and there is no risk of negative equity.

Once the payments have been made, buyers can either pay the final ‘balloon’ rental to buy the car outright or use any excess value as a deposit for a new agreement, or walk away if the guaranteed future value is below the stated amount. 

The car needs to be kept in good condition and kept to the agreed mileage, but other than that, there is little for drivers to worry about.

That makes it the ideal tool for financing a new car for the majority of new car buyers – low risk, competitive rates and lower repayments.

PCH is a long-term rental that will suit drivers not looking to buy the car outright.

Simply lease the car for an agreed period of time and mileage by making fixed monthly payments with three or six months up front.

At the end of the contract, return the car and take out a new contract, and there is no balloon payment.

However, you cannot alter the agreement, so if you suddenly change jobs and start covering double the mileage, you will be liable for excess mileage payments.

You are also expected to keep the car in good condition, otherwise you will be charged for repairs. 

For those who want to use a brand new car that is cleaner, safer and including the latest technology rather than buy it outright, then personal contract hire ticks all the boxes.

Both PCP and PCH are excellent methods to allow drivers access to newer, more environmentally-friendly cars and should not be dismissed in the way they have been in the ‘popular’ press.