What You Need To Know About Personal Contract Hire

Personal Contract Hire is a term more commonly used in today’s world, but before we get into the technicalities of what it is, let us understand what it means.  Usually, you hear of people applying for a car loan to buy a car and when their loan is paid off they own the car or have to make large final payment. However, when it comes to Personal Car Leasing, you only have ownership of the car for a certain period, which is called the lease period. During your contract period, you pay a certain amount to the lease company every month.

When the contract ends, you do not own the car and you will not be given the option, to buy the car. You simply return the car to the company and if you want to, sign a new contract for a newer car.

How does it work?

Personal Car Leasing is a form of car rental, which is not only extended to businesses but also to individuals. Once you decide to go for a personal car lease, you will have to sign a contract that will specify the duration of the lease and also agree an annual mileage. At the start of your lease, you will need to pay an initial payment followed by monthly instalments. Of course, if you pay a larger amount at the beginning, your monthly payment amount will be less.

Your monthly payment amount is calculated by using certain factors.. The leasing company will estimate the residual value of the vehicle, which means the value at the end of the contractual period (which has depreciation considered as well). This is why the company will agree your mileage at the beginning of your contract as this does influence the resale price at the end of your contract.

The company will deduct the estimated residual value from the retail price of the car, and then you pay the difference in the form of monthly instalments. Once the contract is over, you return the car to the company as per the conditions stated.

A little more about the payments

There are certain components that make up your payment cycle, when you are looking to go for personal contract hire. To begin with, there’s an initial payment, which is a non-refundable amount equivalent to either one, three, six or none monthly payments. When you pay a lump sum amount right in the beginning, your monthly payments reduce. Other charges, including a one-time document processing fee, might also be included. Next comes the monthly price, which is the fixed amount you pay every month until your contract ends.

The annual mileage is decided at the beginning of the contract. If you exceed the agreed mileage, you will have to pay a penalty. The penalty amount will be stated in your agreement.   If during your contract you know you are going to exceed your mileage, it’s always best to call your car leasing company to see if they can renegotiate your contract.

5 Technical Terms You Need To Know Before You Visit A Personal Car Leasing Dealer

If you are thinking about becoming a first-time car lessee, we bet you are a tad nervous, and the unfamiliar terms and jargon are probably adding to the confusion.

To help you feel more comfortable, here’s a quick guide to get you acquainted with some of the most important terms you will encounter in the world of personal car leasing. Make sure you read these before you start talking to a car lease company.

1. Personal Car Leasing: 

Let’s start with the basics – Personal car leasing in the UK(also called personal contract hire) is a type of lease that is for an individual, rather than a business. The car is leased for the length of the contract as a personal vehicle but is returned once the term of the contract ends.

This should not be confused with business car leasing where a business rents the car for its employees or a PCP (personal contract purchase) where you have the opportunity to buy the car once your contract finishes.

2. Annual Mileage and Excess Mileage: 

Your monthly payments will be calculated on the basis of the annual mileage you agree to. In the UK a personal car lease contract will have a fixed mileage amount and will also state the penalties for exceeding this mileage.

This excess mileage for leased cars is put in place to protect the value of the vehicle at the end of the term. The exact penalty will be included in your contract and is usually in the form of a cost per mile.

3. Fair Wear and Tear:

While leasing a personal car, you will also have a clause regarding fair wear and tear in your lease contract. Basically, you will need to return your vehicle in an acceptable condition at the end of your contract.

Extensive guidelines set by the British Vehicle Rental and Leasing Association (BVRLA), are followed to ensure the rights of both the parties. If your leased car doesn’t pass the inspection, then you could be charged excess wear and tear costs.

4. Initial Payment and Processing Fee:

The initial payment refers to the first payment which you will make right at the start of the car lease contract. This will be part of the entire rental amount and is usually equivalent to 3, 6- or 9-month’s rental amount to be paid as a lump sum.

If you choose to pay a higher initial amount, then your subsequent monthly installments will be lower. For personal car leasing, some dealers charge a processing fee for making the lease agreements and handling the entire process.

5. Lease Term and Early Termination Fee:

This is another clause you need to pay attention to – the lease term refers to the entire length of your contract and for PCH (Personal contract hire) this is normally between 2-4 years.

If you choose to end your contract early, then you will be liable to pay an early termination fee which is usually a percentage of the remaining monthly rentals.

Before you enter any contract, especially when finances are involved, you must have as much information as possible before signing and understand all the jargon and terminology.

Hopefully our mini-glossary, will give you some basic knowledge of the major terms of a car leasing contract.

Now, go ahead and negotiate a good deal and happy driving!