Private motorists have long preferred owning a new car outright. You raid your savings account or take out a personal loan, then negotiate the best deal.
Today's motorists can also use car finance plans where you don't have to own the car. Most popular is PERSONAL CONTRACT PURCHASE (PCP), where you pay a deposit plus monthly repayments to cover part of the car's cost, then decide later whether to buy it outright or start a new purchase plan.
PERSONAL CONTRACT HIRE (PCH) - a.k.a. Personal Leasing or Monthly Rental - sounds similar but is a different concept. The 'Hire' element gives the game away: you pay a small initial fee, then rent the car over an extended period and hand it back to the finance company at an agreed age and mileage. Essentially, PCH is a lease agreement with a servicing contract bundled in.
LEASE PURCHASE is closer to a PCP. You pay a deposit, then instalments with an option to make a final lump-sum 'balloon' payment to own the car. A servicing contract may be included or optional in the lease purchase scheme.
Monthly payments with PCH and Lease Purchase are higher than for personal loans or HP, but there can be tax advantages for companies, partnerships and the self-employed - ask your accountant's advice. These schemes also benefit cash flow management, while servicing contracts reduce administrative hassles.
- Penalty payments for mileage in excess of the agreed figure can be steep.
- Your employer may offer a cheap 'assisted lease' scheme if you need a car to carry out your job. This form of lease is most common in the public sector.