When it comes to car financing options, two of the most popular choices are contract hire and personal contract purchase (PCP). While both options allow you to drive a car without owning it outright, there are differences between the two that could affect how much you end up paying.
The question of whether contract hire is cheaper than PCP is one that many prospective car buyers ask, and the answer is not a straightforward one. It depends on a variety of factors, such as the type of car you’re interested in, your credit score, and how long you want to keep the car.
Contract Hire
Contract hire, also known as business car leasing, involves renting a car for a set period of time, usually two to four years. You make fixed monthly payments for the duration of the contract, and at the end of the term, you return the car to the leasing company.
One of the benefits of contract hire is that it can be more cost-effective than buying a car outright or using other financing options. Because you’re only paying for the depreciation of the car during the time you drive it, your monthly payments are generally lower than they would be with other forms of financing.
Another advantage of contract hire is the flexibility it offers. You can choose the make and model of the car you want, as well as the length of the contract and the mileage allowance. And because the car is owned by the leasing company, you don’t have to worry about selling it or trading it in at the end of the term.
PCP
Personal contract purchase, or PCP, is a popular car finance option that allows you to drive a new car for a fixed period of time, usually two to four years. Like contract hire, you make fixed monthly payments for the duration of the contract, but with PCP, you have the option to buy the car at the end of the term.
One of the advantages of PCP is the lower monthly payments compared to other forms of finance, as you’re only paying for the depreciation of the car during the time you drive it. You also have the flexibility to choose the make and model of the car you want, as well as the length of the contract and the mileage allowance.
However, there are some downsides to PCP. For one, you’re required to make a large balloon payment at the end of the contract if you want to own the car outright. This payment can be several thousand pounds, which can be a significant financial burden for many people.
Another potential drawback of PCP is the mileage allowance. If you drive more than the agreed-upon mileage during the contract term, you’ll be charged excess mileage fees, which can add up quickly.
Which is Cheaper?
So, is contract hire cheaper than PCP? The answer really depends on your individual circumstances and the car you’re looking to drive. In general, contract hire tends to be cheaper than PCP, as you’re not responsible for a balloon payment at the end of the term.
However, if you’re interested in owning the car outright at the end of the contract, or if you plan on driving a lot of miles, PCP may be the better option for you.
Ultimately, it’s important to do your research and compare the costs and benefits of each financing option before making a decision. By carefully weighing your options, you can find the financing option that best meets your needs and fits your budget.