Because it’s a significant investment, second only to purchasing a home, buying a new car is a big deal for most people, especially if they want to buy it outright.
But unlike a home, having paid out a substantial sum, a car reduces in value even as it’s driven home!
To spread the cost and make the acquisition of a new car easier, there have always been a number of funding options available, from a straightforward bank loan to finance packages available via the dealer. However, as people are becoming more comfortable with the concept of ‘usership’ rather than ‘ownership’ – moving away from the peculiarly British obsession with owning our houses and cars – alternative models are starting to take off.
For cars, this now brings the possibility of both avoiding that huge single outlay and dodge the worry of depreciation and resale value, using personal finance schemes known as personal contract hire (PCH).
The pleasure of a new car – without the pain
With this model, a finance company buys the car on behalf of the customer and both parties enter into a contract – usually 2, 3 or 4 years. The financier estimates what the value of the vehicle will be at the end of the contract, then calculates set monthly payments accordingly. This is based on the length of the contract and the annual mileage allowance, which then results in simple monthly rental payments. Depending on the contract, this can give almost fixed cost motoring, meaning that the payments covers all costs – road tax, maintenance, servicing etc. – leaving the driver with just fuel and insurance to cover.
Depending on the scheme, and on things such as the customer’s credit status, an initial payment equivalent to a few months of rental will be required. This is commonly three or six month rental payments, but can vary. The larger the initial instalment, the lower the monthly payments will be.
At the end of the contract, the car is returned and, if required, a new contract taken out. There is no option to own the vehicle – this is a rental agreement. And there can be extra charges should the car be returned with damage beyond what is considered ‘fair wear and tear’, or if it has done more miles than originally agreed. This is to cover the loss in value as a result.
A valuable resource for employers
Businesses are increasingly turning to the personal contract car hire option to help their employees, as it can be a valuable addition to staff retention packages.
With tax rises making the traditional company car scheme less attractive, PCH is something different that still offers a considerable benefit to staff. The prospect of driving around in a new car for a set monthly fee, and with no maintenance and servicing to worry about, is very attractive.
For companies, this helps with both staff retention and loyalty, as it is a valuable perk.