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This is the million-dollar question for some, and you might think that on a site like ours we will always lead you down the path of leasing. Well this is simply not true, we understand the fact that contract hire will not suit all our customers but it is true however that leasing can be a benefit more than you might think.

If you decide to lease (contract hire) there is a strong likelihood that your monthly payments will be considerably less than financing the same car with traditional HP (High purchase) or even PCP (personal contract purchase) but when leasing a vehicle you will have contractual obligations such as looking after the car, telling us the mileage you intend to do over the full period of the contract and the fact also that at the end of your contractual period (normally 2, 3 or 4 years) you will need to consider your next new car.

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Are the benefits of PCP similar to leasing?

Whilst there are notable differences between contract hire and PCP there are some benefits that both forms of funding have in common:

  • Fixed monthly payments – simple to budget
  • Low or no initial payment – keeps your cash in the bank
  • Ability to be able to drive higher value cars – As you do not pay for the car as with HP the monthly payments can be considerably less than ownership
  • Maintenance packages available – You can further simplify the car use by adding a maintenance package (at extra cost)
  • Frequently change cars for new and up to date models – as you contractually agree to a period of finance you can update your car on a regular basis

Benefits of PCP (you probably did not expect that on this site)

Ownership – this is the biggest difference between PCP and contract hire, if you want to own your car for more than the contracted period this is possible with PCP. At the beginning of your PCP agreement the finance company will inform you of the balloon that is payable at the end of your contract. This is normally referred to as the minimum guaranteed future value (MGFV) and is payable along with the initial deposit and monthly payments you have already made.

The finance company will have done its best to predict the future value of your car and will therefore add an element of capital to this total calculation to try and allow you to have money left over when your contract finishes so you can afford another deposit for your next car. If you do not want to buy the car at the end of your agreement you can simply hand it back subject to mileage and condition (charges can apply), and then you start all over again.

Benefits of contract hire

  • No residual value risk – With contract hire it is never your concern how much the car is worth at the end of the agreement as you simply give it back (subject to mileage and condition – charges can apply) so 3 to 6 months before the end of your agreed term you start looking for a new model car (if you are continuing with contract hire).
  • Business only – Tax efficient – with contract hire you can offset up to 100% of the monthly rental against your taxable profit and can reclaim up to 100% of the vat if you are using the car solely for business purposes

Summary

PCH and contract hire have some great benefits and both can allow you to drive a higher value car that might have otherwise been out of reach with traditional funding methods. It is fact that contract hire has taxable advantages for business and can allow you to improve moral, efficiency and reliability within your business. It is also true that if you want to own your car PCP or HP are the only routes to go but if you do not need or want to own or have the hassle of disposal then contract hire could be just what you are looking for. Contract hire is simple and allows you an element of budgetary control but PCP gives you the feeling of the car being yours. Both contract hire and PCP give you low fixed cost motoring with PCH allowing you to change your car frequently.

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