Personal contract hire is a car leasing product available to an individual. It is similar to Contract Hire in the way it works, however the customer will be unable to claim back the VAT on the monthly rental payments.
Personal contract hire is a car leasing product aimed at an individual rather than a business. The primary difference between personal contract hire and normal contract hire is that the individual will not be able to claim back the VAT that is charged on contract hire. However, in all other respects, personal contract hire follows the same structure as normal contract hire. Monthly rentals are based on the difference between the value of the vehicle at the beginning of the contract and the value of the vehicle at the end of the contract (the residual value).
Contract hire agreements come with yearly mileage limits to preserve the residual value of the car. As you are returning the car at the end of the agreement, it is in the lenders interest to ensure that they car they receive back has the value they are expecting. Because your monthly rental payments cover the cost in depreciation of the vehicle over the term length, anything that can affect the car's residual value during this agreement will be monitored closely. Primarily, this is through mileage limits, however there can also be condition requirements and you may be restricted to having your car serviced and repaired at certain mechanics.
The benefits of Personal Contract Hire are that payments can often be quite low, as you are only effectively paying for the depreciation of the car across the years. By choosing a make or model that is known to retain its value, you could potentially have some of the lowers payments available on a car leasing agreement.
In many ways, Personal Contract Hire is similar to Personal Contract Purchase. The big difference is that in a PCP deal, you have the option to purchase the car at the end of the agreement. The other benefit is that in a PCP deal, once you have paid at least a third of the car’s value, the lender can’t repossess it without a court order. In a Personal Contract Hire package, the lender doesn’t need a court order to repossess your car should you fall behind in your payments.
To find out more about contract hire, visit the dedicated contract hire car finance terms page.
If you require further assistance, our team of Customer Advisors are here to help. We're open six days a week - you can view our opening hours here - and we're more than happy to answer your questions.