To make your options clearer, and hopefully make your decision a little easier, we’re going to look at the pros and cons of the most popular car finance options: Personal Contract Purchase (PCP) and Personal Contract Hire (PCH) , otherwise known as leasing.
Although we’re only evaluating these two options, at Inchcape, we have a range of car finance deals available which you can find out more about here.
Personal Contract Purchase (PCP)
How does PCP work?
You choose your car, agree a contract length and mileage allowance with the dealership, and then put down a deposit. Based on these factors, you’ll then be given an estimate of what the car’s value will be once the contract ends. This value will be offset, and the remaining balance will be split into monthly payments.
At the end of the contract, you’ll have three choices:
- Retain: Pay a final agreed amount (the projected value of the car) and you’ll then own it.
- Return: Give the car back to the dealership at no extra cost, subject to mileage and condition.
- Renew: Part exchange the car, using the remaining equity as a deposit for another vehicle.
Pros of PCP
- You have multiple options once the contract comes to an end
- Your money is being invested into something you can own
- If you choose to keep the car, there are no more monthly payments to make
- It’s a good option if you can’t afford to buy a car upfront
Cons of PCP
- You’ll have to pay a bulk payment at the end if you want to own the car
- If you give the car back and there’s more mileage than predicted, you may incur charges
- Monthly payments can be higher compared to leasing
- You will have to cover service and MOT costs
Leasing/Personal Contract Hire (PCH)
How does leasing work?
You’ll select a car, agree a rental term and set a mileage allowance, then pay a deposit and commence monthly payments. With this car finance option, you’ll never own the vehicle as you’re essentially renting it for the time agreed. Once the contract ends, you’ll give it back.
The value of the new car is established, and its value at the end of your lease is estimated. You will pay the difference between these two amounts through your monthly instalments. Usually the deposit is three months upfront, but you can choose to increase this initial payment if you want to keep your monthly payments down.
It can be possible to make an offer to buy the car at the end of the contract, but this is quite rare; usually people decide to just begin a new lease.
Pros of Leasing
- Down payments are usually quite low, making it a more cost-effective option for getting a new car
- Road tax is covered, and you won’t need to pay for an MOT if your lease is less than 3 years
- There’s no need to worry about losing money on the car’s value
- You simply give it back at the end of the contract and choose a new model
Cons of Leasing
- You will likely be charged excess mileage fees if you exceed the original agreed limit
- At the end of the contract, you may be charged for any damage to the vehicle that is viewed as beyond reasonable wear and tear
- If you want to end the lease early, there can be costs involved
- It can be more expensive to insure lease cars as you are usually required to purchase the maximum cover
Conclusion: To buy or lease a car?
The decision to buy or lease a car isn’t always easy, so it’s important to think about what you want. If your end goal is to own your own car with the benefit of spreading the cost, PCP may be the way forward for you. Whereas, if you love new car models, and want a new set of wheels fairly frequently without breaking the bank, leasing may be the better finance option. If you want to find out more about any of our car finance options, you can contact one of our dealerships or submit an enquiry online.