PCH versus PCP
Buying a new car on finance, also known as the “never-never”, can have advantages over buying outright. Franchised dealers may offer deposit contributions and lower interest rates - even 0% finance to sweeten the deal.
So, if you are looking to get behind the wheel of a brand new car without the commitment of ownership, Leasing or Personal Contract Hire (PCH), might be the answer.
But, is PCH still the budget-friendly option it once was? We crunch the numbers and reveal the pros and cons to help you decide if PCH leasing is the right choice for you.
PCH vs PCP: A Cost Comparison
With Personal Contract Purchase (PCP) you pay a deposit and then make monthly payments to cover the car's depreciation. At the end of the contract, you can choose to return the car, upgrade to a new model, or make a final payment to own the car - the "balloon payment" or "guaranteed minimum future value".
Traditionally, PCH offered lower monthly payments than PCP deals. Let's see how that stacks up today:
We compared a Vauxhall Corsa and a BMW 1 Series leased over 3 years against PCP (with a 15% deposit and 10,000 miles per year). The initial deposit for leasing is much smaller than for PCP, and the monthly payments on the cheaper Corsa are lower too.
We show savings of over £6,000 on the Corsa PCH compared to PCP - but not much difference between the two routes for the BMW.
This shows it is worth shopping around for the best deal! And some dealerships will negotiate better terms on their PCP deals to tie you in as a customer for repeat purchases.
The Perks of Leasing
• Lower upfront costs: A small initial payment makes getting a new car more accessible. You can put down as little as one monthly payment compared to a typical 10-15% deposit with PCP.
• Potentially lower monthly payments: In many cases, leasing offers lower monthly payments than PCP, freeing up cash for other things.
• Peace of mind motoring: Some lease deals include road tax (VED) and breakdown cover, making budgeting easier.
• Hassle-free car changes: Simply hand the car back at the end and lease another one. No need to sell it privately.
The Downsides of Leasing
• No ownership: Unlike PCP, you don't own the car at the end of the lease. However, if you are someone who likes to change cars frequently, this might not be a deal breaker.
• Limited flexibility: You can't settle the finance early and switch to another car like with PCP.
• Early termination fees: Ending a lease early can be expensive, with fees potentially reaching thousands of pounds. Many lease deals stipulate that you have to pay at least half of the remaining monthly payments if you want to end the lease early, and some companies will want all the outstanding payments.
• Watch the wear and tear: Leasing companies have stricter guidelines on car condition compared to PCP. Be prepared to pay for any excessive damage beyond "fair wear and tear."
• Mileage limits: Exceeding the agreed mileage limit will incur extra charges. Calculate your expected mileage accurately beforehand.
Under both PCP and PCH, you are responsible for servicing and repairs. Some companies offer optional maintenance packages for added peace of mind. Both require comprehensive car insurance to cover you for any accidents.
Missing a payment can damage your credit score and make future borrowing more expensive. Contact the finance company immediately if you struggle to make a payment, they might be able to extend the contract or offer other solutions.
Additional Considerations for Leasing
Electric Vehicles (EVs): Leasing has become increasingly popular for EVs due to their higher upfront costs. With leasing, you can drive a new EV without the significant initial outlay. However, it's important to consider the potential impact of battery degradation on the residual value of the car at the end of the lease.
Hybrid Vehicles: Hybrid vehicles offer a balance between fuel efficiency and performance. Leasing a hybrid can be a good option if you want to reduce your carbon footprint without committing to a fully electric vehicle. However, the residual value of hybrid cars can vary depending on the specific model and its popularity.
Hidden Costs
In addition to the monthly payments, initial deposit, and potential early termination fees, there may be other hidden costs associated with PCH. These can include:
• Excess mileage charges: If you exceed the agreed-upon mileage limit, you'll be charged extra.
• Wear and tear charges: If the car is returned in a condition that exceeds the leasing company's fair wear and tear guidelines, you may be charged for repairs.
• Administration fees: Some leasing companies may charge administrative fees for various services, such as early termination or changes to the contract.
Negotiating Your Lease Deal
Don't be afraid to negotiate your lease deal. Many dealerships and leasing companies are willing to offer discounts or incentives to attract customers. Consider the following negotiation tactics:
• Shop around: Compare offers from multiple dealerships and leasing companies to find the best deal.
• Negotiate the initial payment: Try to negotiate a lower initial payment or a longer contract term.
• Discuss mileage limits: If you know you'll need more mileage than the standard limit, negotiate a higher annual mileage allowance.
• Consider additional services: Ask about potential discounts or bundled packages that include maintenance, insurance, or other services.
The Verdict: PCH or PCP?
Leasing can offer lower costs and a hassle-free motoring experience compared to PCP. However, it's not for everyone. Consider your financial stability and mileage needs before signing a lease. If you crave ownership or flexibility, PCP might be a better fit.
Most PCP credit deals can be ended at any time by paying off the balance and taking ownership of the car without any complications, like checking actual mileage if you have over driven, or any wear and tear damage requiring fixing or paying for (Read the Terms and Conditions).
If you are ‘canny’, with a PCP deal you could negotiate a large Manufacturer or dealer deposit contributions with a higher interest rate over the term of the agreement, and then use savings to pay off the credit loan early!
Remember: Always shop around and compare different PCH and PCP deals before making a decision. This guide should help you navigate the world of leasing and decide if it's the right path for your next car.
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