What is Personal Contract Hire?

What is contract hire?

Contract hire is a form of leasing designed for individuals rather than businesses. It's like renting but on a longer-term, typically between two and four years.

The main difference with contract hire is at the end of the agreement, you return the vehicle. In contrast, a Personal Contract Purchase (PCP) agreement means that you pay an initial payment, monthly payments and at the end of the agreement, you either return the vehicle or pay the optional final amount, sometimes referred to as a “balloon”, and own the vehicle outright.

The monthly payments on a PCP go towards the use and possible future ownership of the vehicle. In comparison, PCH payments cover your use of the car and the associated depreciation.

The benefits to personal car leasing are that when the contract is up, you can return the vehicle and select another one, with a new lease timed to coincide with the end of your contract.

You can choose to include vehicle maintenance and insurance within the monthly payment with a Fuel & Go lease. All contract hire agreements include Road Tax, meaning the only thing left to pay is fuel!

How does contract hire work?

Car leasing or contract hire offers a simple way of driving the latest models. You effectively rent a car for a fixed period and pay fixed monthly instalments during the lease.

The process of leasing a car with PCH is as follows:

1. Choose your car – pick your favourite vehicle from a wide selection of leasing deals
2. Get a quote – decide the lease term, annual mileage, initial rental amount and any extras you'd like to add, such as maintenance and insurance, and get a quote
3. Apply for finance – the leasing company can help you arrange finance for your lease car – a credit check is required
4. Sign your contract – once you’ve been accepted, it's time to sign the paperwork
5. Arrange delivery – your car will be delivered to you at a convenient time and date

What affects the price of contract hire?

Contract hire is a flexible and affordable way to lease a car. You pay fixed monthly instalments over the contract period. However, these costs are affected by several factors, such as:

Cost or purchase price of the lease car – if you opt for a more expensive vehicle, your monthly instalments will be higher

Length of contract – agreements are typically between two and four years, and this affects overall costs

Initial rental payment – you can choose how much your first payment is (between one and 12 months upfront). The more you pay, the lower instalments will be over the term

Annual mileage allowance – higher mileage allowances increase the cost of your monthly payments

Optional extras – adding extras such as metallic paint, high-spec wheels or upgrading trim levels increases costs

Adding insurance and maintenance packages – additional packages such as Fuel & Go increase monthly instalment costs

For more information on costs associated with PCH, check out our guide to leasing costs.

Benefits of contract hire

There are several advantages of PCH agreements, including:

Drive the latest car – a wide variety of the latest models are available at affordable monthly costs. So, you can take advantage of high-spec tech, reliability and cost-effective motoring

Fixed monthly payments – instalments stay the same throughout the contract, which helps to manage your budget more effectively

Flexible initial payment – choose how much you pay upfront (typically between 1 and 12 months instalments). The higher the payment, the less your monthly cost will be

No need to worry about depreciation – leasing a car means you don't need to think about resale value or depreciation, unlike buying outright

Flexible contract terms – choose a contract period to suit your needs

Upgrade more regularly – flexible terms mean you can switch your vehicle when it suits you

Road tax included – Vehicle Excise Duty (VED) fees are included in the cost for the duration of your lease

Tailored mileage allowance – if you think you’ll do a lot of driving during the contract, annual mileage allowances can be tailored to your needs

No hassle returns – at the end of the lease, the car is collected at no extra charge

Breakdown cover included – most car leases come with breakdown cover over the entire leasing period

For more information about how leasing could work for you – learn more about the many leasing benefits in our guide.