Personal Contract Hire Explained
What it is in plain English
Personal Contract Hire is essentially a long-term vehicle rental agreement for private individuals that allows you to drive a new van for a set period without ever owning it. You pay fixed monthly rentals to use the vehicle, and at the end of the term, you simply return it to the leasing provider, avoiding the risks associated with depreciation.
How it works step by step
The process begins by selecting your preferred van and determining an annual mileage limit that fits your usage. You will then agree on a contract length, typically lasting between two and four years. Once the initial rental—often equivalent to several months of payments—is paid, you make fixed monthly instalments for the duration of the agreement while using the vehicle.
What you pay and what is included
Your monthly costs are calculated based on the vehicle's expected depreciation over your chosen term. While insurance, servicing, and repairs are generally your responsibility, some agreements offer optional maintenance packages that roll these costs into your monthly rental. It is important to note that road tax is almost always included in your agreement for the full duration of the contract.
Who it suits and who it does not
This method is ideal for drivers who prioritise predictable monthly costs and enjoy upgrading to the newest models every few years. However, it is less suitable for those who want to build equity in their vehicle or own it outright at the end of the term. If you find it difficult to stick to a pre-agreed mileage limit, the excess mileage charges may make this route less cost-effective.
Questions to ask before you sign
Before entering any agreement, clarify the exact penalties for exceeding your agreed mileage limit to avoid unexpected bills. You should also ask whether your contract includes breakdown cover and what specific condition the van must be in upon return to avoid fair wear and tear charges. Confirm whether the initial rental can be adjusted to balance your monthly budget requirements.
Frequently asked questions
FAQs
What is personal contract hire and how is it set up? Personal Contract Hire is a leasing arrangement where you rent a vehicle for a fixed term and mileage. It is set up by choosing a van, agreeing on a contract length and annual mileage, and paying an initial rental followed by fixed monthly payments.
Do I own the van at the end of a Personal Contract Hire agreement? No, you do not own the van. Because you are essentially hiring the vehicle, you must return it to the leasing company at the end of the contract term.
What happens if I go over my mileage limit? If you exceed your agreed annual mileage, you will be charged a pre-set 'pence per mile' rate for every mile over the limit, as specified in your original contract terms.
Is insurance included in my monthly payments? Typically, no. You are responsible for arranging fully comprehensive insurance for the vehicle, just as you would with a van you bought outright.
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