[solutions4finance]

The trouble with buying a new car is how fast you start to throw away pound notes. Few purchases depreciate at the speed of a new car. As the theory goes, the car loses value as soon as you drive it off the dealer’s forecourt. However, there are ways to eliminate or reduce the negative effects of depreciation – and personal contract hire is top of the list. Personal contract hire is both cost-effective and easy to manage. This guide to personal contract hire will attempt explain how it works and who it’s right for; however, you may still feel the need to ask questions after reading through my rambling explanation!


Personal contract hire is essentially the same as the regular contract hire that businesses use to fund new cars, but it applies exclusively to private individuals. It is the most common form of car leasing for individuals (or “domestic” use) and usually when the term ‘car leasing’ is referred to, most people are talking about personal contract hire.


With a personal contract hire agreement you take control of a car for a contractual period – usually two, three, or four years. Though the car is in your possession, it is not actually yours to own. Instead, you make fixed monthly payments to a leasing company for the duration of the contract – and when the contract expires you simply return the car to the leasing company or take out a new personal contract hire agreement. As a result you never have to worry about resale values of the car – because you can simply return it and walk away.


More often than not, the total amount repaid throughout the term of the contract is far less than the amount that the car would have depreciated if you had bought it from new, so it will cost you less to drive the same car. As well as limiting your loss through depreciation, you won’t have to pay road tax.


If you were considering buying a used car, you could find that personal contract hire could still save you money. If, for example, you were taking out a loan to buy a second hand car, you will probably find that monthly payments on a new car through personal contract hire will be cheaper than your loan repayments. Throw into the equation the road tax, increased reliability (no repair bills), lower running costs, and no MoT test requirement, and the savings soon mount up.


There are many advantages to personal contract hire including:

• Fixed prices – You can hire new cars at fixed prices and not have to worry about interest charges. This can help you to manage your monthly budget.
• Cost effective – The monthly instalments for a personal contract hire agreement will generally be lower than those of a personal loan.
• Road fund licence – This is often included in the agreement.
• Maintenance packages – Most personal contract hire deals can include maintenance packages so you don’t have to worry about the general upkeep of the vehicle.
• No depreciation concerns – You don’t have to sell the car at the end of the term so you don’t have to worry about its depreciation.
• Access to more ‘upmarket’ vehicles – With a personal contract hire deal, you could afford a car that would otherwise be too expensive. As luxury cars tend to depreciate at the slowest rates, these often provide the best personal contract hire deals. Check out our vehicles page for some of the latest offers.

There are disadvantages to personal contract hire too, but generally these are based on perception:

• Comprehensive car insurance – You will not be able to take out third party car insurance, you’ll need a comprehensive deal as the car is not yours.
• You never own the vehicle.
• No option to buy – Unlike a personal contract purchase agreement, there is no chance to buy the vehicle at the end of the contract.
• You will be asked to specify your annual mileage to calculate the rental, and if you go over you will be asked to pay an excess mileage fee.

If you run a business, you should investigate regular contract hire as this will include VAT built into monthly payments and additional incentives such as hire rental tax allowances.


However, for private individuals, personal contract hire can be ideal dependent on your circumstances - just think about how you plan to use the vehicle.


If you travel a lot and your mileage is high, the residual value of the car will drop which will increase your monthly payments. However, personal contract hire gives you fixed monthly payments and you have the option to drive a new car every few years, which is an excellent incentive. So as long as you don’t mind not taking ownership of a vehicle, personal contract hire could be the right solution for you.


So, enough said about personal contract hire - if you would like to chat it through in more detail then please feel free to give us a call.


For a compaetitve quote on any make or model of new car. van, or 4x4 please contact me.





Looking for car reviews? On the blog pages of our website you'll find car reviews, general business related articles, and extracts from "The Country Bachelor"

[Fuzzy]

I used to lease a car for 15 years and it was the best method for my type of business at the time. Since bought a car and as soon as I drove it out the posh showroom, lost £'s

[pvcprinting]

A great post but am I correct in staing is only really beneficial to business hire and VAT registered business at that?
Do you also undertake PCP's?

Regards

Pete

[solutions4finance]

Hi Pete

Thanks for the post.

Contract hire is only applicable to businesses. VAT on contract hire is "reclaimable".

PCP or PCH is positioned for individuals, or the domestic market, so VAT is shown as part of the rental payment and is not reclaimable.

Even though the VAT element of a PCP or PCH can't be claimed back, the scheme does, more often than not, still save people money.

If you would like more information, or a quote, then please do feel free to give me a call.

Regards

Justin
01626 363 339
info@solutions4finance.com

[solutions4finance]

Sorry Fuzzy... should have said a BIG thank you to you too for your "plug"!

Cheers

Just

[Fuzzy]

Tis cool (feel free to throw any commission my way)

[solutions4finance]

Fuzzy... I've already offered an introductory commission in another post... I think... well, I meant to!

You're not getting it for that though... maybe I'll make you a coffee if you come down here to get it!

Have fun!

Just