More and more new car buyers are waking up to the benefits of personal car leasing to acquire a brand new car rather than buying one outright with their own savings.
There are a number of personal leasing options available in the car finance arena, the two most common being personal contract purchase (PCP) and personal contract hire (PCH), each with their own features and benefits.
Types of buyers trying some form of personal car leasing package for the first time may include company employees who have taken a cash allowance in lieu of a company car, perhaps because they have opted out of the company car scheme as they feel the tax bill is too high.
But they could also include retail buyers who have perhaps traditionally bought their cars outright, but have realised there may be a more cost-effective, less risky way of acquiring the latest model of their choice.
What are the most popular finance options available?
Personal Contract Purchase
One of the most popular forms of personal car leasing is personal contract purchase or PCP as it is more commonly referred to.
This typically involves paying a deposit at the start of the contract then monthly instalments over a fixed period. At the end of this, you 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. Ironically, according to the Finance and Leasing Association, 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 and the annual mileage varies with each individual contract. Typical contracts are from 24 to 60 months with mileage bands that usually range from 10,000 to 40,000 miles per annum.
However, if you exceed the pre-agreed mileage then an excess mileage charge will apply. These figures will be provided with the original agreement.
Choosing the right PCP term is important. Opt for a lengthy period and you’ll end up paying more for the car. But if it’s too short, you’ll have higher monthly payments and could risk not being able to meet them.
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 are hiring the car for the duration of the contract and will not own it until the balloon payment is made. Once the final payment is made, then the car legally becomes yours.
However, is you have no intention of buying the vehicle at the end of the contract, personal contract hire might work out as a cheaper option.
Usually the finance company or car dealer will set up a PCP plan so the balloon payment agreed at the start of the contract will be less than the car’s market value at the end of the contract.
Assuming this difference in value still exists by the end of your plan, you can use the money as a deposit for leasing a new car through PCP.
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 potential option to include a servicing package 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 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, which can be tailored to meet the exact needs of the person taking out the PCH agreement. This usually includes an initial payment of three, six or nine monthly rentals in advance. Obviously, the higher the initial payment made, the lower the monthly rental.
Again, the length of the contract and the annual mileage varies with each individual contract. Typical contracts are from 24 to 60 months with mileage bands that usually range from 10,000 to 40,000 miles per annum.
However, again it’s important not to exceed the pre-agreed mileage as an excess mileage charge will apply.
The price of the monthly payment varies with the number of miles driven. This is because the finance company bases its prices on the predicted future value of the vehicle, and the more miles you drive the lower its residual value will be at the end of the contract.
Prices typically include a maintenance package. This will usually include full servicing in line with the manufacturer’s recommendations, replacement tyres, brakes and all other serviceable items, for the duration of the contract at any of the manufacturer’s approved UK-based dealerships.
Breakdown cover, road fund licence, delivery and manufacturer’s warranty are all included – everything, in fact, 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
Where is it possible to lease cars in this way?
Finance providers like Maxxia typically offer personal car leasing services with a wide range of vehicles. This service provides potential lessees with the opportunity to browse online through a huge range of personal lease car finance offers for some of the very latest new models in the market.
Depending on the type of vehicle, vehicles in stock can usually be delivered within 10-12 working days. If the vehicle has a special specification, however, it will be necessary to provide a confirmed factory build time.
All the vehicles supplied are typically sourced direct from the manufacturer and the relevant UK-based franchised dealer network. Delivery will take place at an agreed time to either the business or home address depending on preference.
If you would like more details of how personal car leasing can work for you, speak to one of Maxxia’s experts on 0845 643 1319 or email [email protected]