Personal Contract Hire

It’s a well known fact that a new car loses a certain amount of value as soon it’s driven off the forecourt. Depreciation can be a deciding factor for some people when they decide to purchase a new vehicle. One way to avoid this negative equity is to purchase the car by using Personal Contract Hire. This method is both cost effective and convenient for both parties involved in the arrangement.

What is Personal Contract Hire?

Personal Contract Hire is ultimately the same as contact hire but is designed to suit the needs of a private individual. This is the most popular form of personal leasing and when people refer to car leasing, they will often be referring to personal contract hire.

With this type of agreement the buyer will take control of the vehicle for a period of time known as the ‘lease period’. The individual takes possession of the car but not ownership. Fixed monthly payments are made to the leasing company for the duration of the contract. When the contract has run its course the vehicle is returned to the leasing company and the individual can enter into another personal contract hire agreement if they choose to. This is a major benefit as you do not have to think about the resale value of the car because it never comes into personal ownership.

How are the payments determined?

The individual has to pay a deposit for the vehicle which generally ranges from two to six times the monthly payments for the car. The monthly payments are determined by the price of the vehicle, the estimated level of depreciation and the likely residual value at the end of the agreement. Built into the contract hire agreement will be a mileage limit. This is important as the mileage will have a big effect on the residual value of the vehicle. If the individual goes over this limit they will incur further costs.

Advantages of Personal Contract Hire

• Fixed monthly prices so you do not have to worry about interest charges.
• A low initial payment generally between three to six monthly payments.
• Cost effectiveness. Usually the monthly payments will be lower than those associated with a personal loan.
• Extra maintenance packages can be taken out so it is the responsibility of the personal contract hire firm to maintain the general upkeep of the vehicle.
• Depreciation is not a concern as the vehicle is not owned by the individual.
• This type of arrangement allows people to access vehicles that would otherwise be too expensive.

Disadvantages of Personal Contract Hire

• You have to take out fully Comprehensive car insurance as the vehicle is not owned by you.
• There is no option to buy the vehicle when the contract finishes.
• Alterations in the VAT rate will be reflected in the monthly payments.

Personal contract hire can is a great choice for some people but it does depend on their circumstances. Fixed monthly payments can help individuals to budget accordingly especially if they need to stick to a tight budget. This method also allows individuals to drive a new car every few years if they wish.