Is it likely you’ll be one of them? If so, leasing a car through Personal Contract Hire (PCH) might work out cheaper for you. Be careful though. If you can’t afford the PCH monthly payments and have to cancel the agreement, you might have to pay off the leasing costs in full, which would end up costing you more.
Both PCP and PCH enable you to lease a car. But PCP also gives you the opportunity to buy the car and become its legal owner at the end of the leasing contract.
To do this, you have to pay a ‘balloon payment’ – also known as the Guaranteed Minimum Future Value (GMFV) – at the end of the contract. This is in addition to your deposit and monthly payments, and will be a few hundred or thousand pounds.
With PCP, the total amount you repay in monthly instalments is based on an estimate of how much the car will lose in value though depreciation between the start and end of the contract.
If at the end of the contract you don’t want to buy the car, you simply hand it back. As long as the car is in good condition and hasn’t exceeded the agreed mileage, you won’t have to pay any more money.
With both PCH and PCP the lender can repossess the car without a court order. But with PCP, once you have paid at least a third of the total amount payable, they can’t repossess it without a court order.