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Personal Car Finance Fuels Growth in the UK Car Leasing Market

More new car buyers are alive to the benefits of personal leasing, according to the latest quarterly survey carried out by the British Vehicle Rental and Leasing Association (BVRLA).

Total car leasing, including leasing of all types, grew by 8% year-on-year in the second quarter of this year, and much of this growth has been driven by the personal contract hire and leasing (PCH) sector. The BVRLA figures show that the PCH sector has grown by 36% year-on-year and 7% quarter-on-quarter.

Personal lease cars are not greener

However, there is an environmental downside to this growth in personal leasing.

According to the BVRLA, the average CO2 figures for newly registered lease cars have actually increased by 0.9% in the second quarter of the year, bucking a long falling trend.

The average emissions of new cars has increased to 111.8g/km, up from 110.8g/km in the previous quarter, and are up by 0.7% compared to the same period in 2016.

The main reason for this rise is the increasing share of PCH vehicles within the wider BVRLA leasing fleet.

The average PCH car on the BVRLA fleet had emissions of 120g/km CO2 in the second quarter of this year, compared to 111g/km for those on contract hire with businesses.

BVRLA Chief Executive Gerry Keaney commented:

“Personal contract hire continues to drive growth in the car leasing market and this is having a clear impact on the automotive industry’s long-term goal of reducing CO2 emissions.

“Company cars are cleaner than the average privately procured car, and the government should be supporting the market with a progressive company car tax regime.”

What are the most popular personal leasing options?

There are a number of personal leasing options available, the two most popular being personal contract purchase (PCP) and personal contract hire (PCH).

A PCP typically involves paying a deposit at the start of the contract followed by monthly instalments over a fixed period. At the end of this, the driver can either pay a pre-agreed lump sum or ‘balloon payment’ to purchase the car outright, return the vehicle or sell it privately to pay off the remainder.

This suits people who want to change their car frequently, and is based around a pre-agreed ‘minimum guaranteed future value’ (MGFV) for the car.

However, according to the Finance and Leasing Association, around four out of five people who take out a PCP do not take up the option to purchase it at the end of the agreement.

The length of the contract typically varies from 24 to 60 months with contracted mileages that usually range from 10,000 to 40,000 miles per annum. However, if you exceed the pre-agreed mileage then you face paying an excess mileage charge.

Prices do not typically include maintenance, although most finance providers also offer a fully maintenance package on request.

When entering into a PCP agreement, you will not own the vehicle until the final balloon payment is made. However, if you have no intention of buying the vehicle at the end of the contract, personal contract hire might work out as a cheaper option.

Some of the benefits of PCP include:

  • Fixed monthly payments for the term of the agreement
  • Right of ownership once the final balloon payment is made
  • The option to include all servicing, routine repairs, tyres, batteries and exhausts at an extra cost
  • The option to return the car at the end of the agreement at no additional cost (subject to meeting the required condition and mileage standards)
  • Any equity can be used as a deposit for your next new car.

Personal contract hire

The big difference between PCP and PCH is that ownership of the car always remains with the finance company providing the vehicle.

The vehicle is purchased by the finance company on behalf of the customer which then estimates a residual value of the vehicle at end of the term, calculating the monthly payments accordingly.

The benefits are that there is no residual value risk for the customer plus known, fixed monthly payments.

An initial upfront payment is required, typically of three, six or nine months rentals in advance, and the higher the initial payment, the lower the monthly rental.

Typical contracts are again from 24 to 60 months with mileage bands that usually range from 10,000 to 40,000 miles per annum.

Prices usually include a maintenance package covering everything except insurance and fuel.

Some of the benefits of PCH include:

  • Fixed monthly payments for the term of the agreement
  • The option to include all servicing, routine repairs, tyres, batteries and exhausts
  • Breakdown cover and road fund licence included
  • Total flexibility to change the vehicle every two, three or four years.
2021-01-22T09:02:33+00:00October 11th, 2017|Categories: Cars, Contract hire, Vehicle Finance|

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