Personal Contract Hire (PCH) Explained | FVL Guide

Personal contract hire (PCH) is car leasing for private individuals. You pay an initial rental, then fixed monthly rentals to use a brand-new car for an agreed term and annual mileage. At the end you hand it back - there's no balloon payment, no part-exchange and no option to buy. That's the whole product.

What is personal contract hire (PCH)?

Personal contract hire is a fixed-term rental agreement between you as a private individual and a leasing funder. You choose a car, a contract length and an annual mileage limit, pay an initial rental up front, then pay a fixed monthly rental for the rest of the term. At the end, you return the car.

The phrase people use day to day is simply "car leasing", and for private drivers PCH is what they mean. The funder buys the car, stays the registered keeper on the V5C, and hires it to you. You get exclusive use of it for the term. What you don't get - ever - is title to the vehicle. If that bothers you, our guide on whether you own the car at the end of a lease is worth five minutes of your time before you go any further.

Where does the monthly figure come from? Not from the price of the car divided by the number of months. You're paying the gap between what the vehicle costs to acquire and what it's forecast to be worth at the end of your term, plus interest charges. Two things follow from that. First, a car that holds its value well can be cheaper to lease than a more expensive-looking rival that doesn't. Second, the risk of that forecast being wrong sits with the funder, not you - if used values collapse during your contract, that's their problem.

PCH agreements taken out by a private individual are consumer hire agreements, and firms arranging them must be authorised and regulated by the Financial Conduct Authority (FCA). We're a credit broker, not a lender - we source the deal and the funder provides it.

How does a PCH agreement actually work?

You pick the car and specification, choose a term (usually 24, 36 or 48 months) and an annual mileage. You pay an initial rental - typically 1, 3, 6, 9 or 12 months' worth - then the remaining rentals monthly by direct debit. The car is delivered to your door. At the end of the term it's collected.

What does "9+35" mean?

Leasing prices are quoted as a payment profile. A 9+35 means nine monthly rentals paid up front as the initial rental, followed by 35 monthly payments - 44 rentals over a 36-month contract. A 3+23 is three up front and 23 monthly over two years. The initial rental isn't a deposit and you don't get it back; it's simply rent paid early, which is why a bigger initial rental always produces a smaller monthly one.

That matters when you're comparing quotes. Two deals on the same car with different profiles are not comparable at a glance - the one with more paid up front will always show a lower monthly figure. Compare like with like: same term, same mileage, same initial rental.

What happens at the end?

The funder arranges collection, usually a few weeks after contacting you. An inspector checks the car against the return standards, records the mileage, and you sign a condition report. If everything's within your mileage allowance and within fair wear and tear, that's it - the agreement closes and you owe nothing further. Most people line up their next lease so the two overlap by a week or so.

Some funders will extend a contract on a rolling monthly basis if your new car is delayed. It's worth asking rather than assuming. For the full sequence from enquiry to delivery, see our walkthrough of the car leasing process, step by step.

How is PCH different from PCP, HP and buying?

PCH is pure rental - fixed payments, hand it back, no ownership. PCP (personal contract purchase) and HP (hire purchase) are credit agreements that lead towards ownership: HP always, PCP if you choose to pay the final balloon payment. Buying outright ties your cash up in a depreciating asset. The right answer depends on whether you actually want to own a car.

So is PCH cheaper than PCP?

Month for month on the same car, term and mileage, PCH is usually the lower payment - you're not funding any route to ownership, and there's no balloon sitting at the end. But "cheaper" depends on what happens next. If you intend to keep a car for eight years and run it into the ground, buying it (via HP, PCP or cash) will normally beat serial leasing over that horizon. Leasing wins when you want a new car every two to four years with predictable costs and no resale hassle.

The honest version: leasing isn't automatically the cheapest way to have a car. It's the cheapest way to have a new car for a fixed period without carrying the depreciation risk. Our pros and cons of leasing guide sets out both sides properly.

Why can a broker's lease price beat what you'd negotiate yourself?

Two reasons, and neither is magic. We commit to manufacturers in volume - hundreds of vehicles at a time - on terms an individual buying one car can't replicate. And the end-of-term value is forecast against the vehicle itself, not against what the funder paid for it. So a volume discount comes off the acquisition side while the forecast value stays where it is, narrowing the gap you fund and lowering the amount interest is charged on. The strongest prices sit where we've bought deepest, which is why the special offers tend to beat the same car ordered as a one-off.

What's included in a PCH monthly rental?

A standard PCH rental covers use of the vehicle, the manufacturer warranty for the term, and Vehicle Excise Duty (road tax) for the life of the contract, since the funder is the registered keeper. Delivery to your address is usually included too. Insurance, fuel or charging, and servicing are not - unless you add a maintenance package.

Is a maintenance package worth adding?

It's an optional extra rolled into the monthly rental that covers scheduled servicing, replacement tyres, brakes and other wear items. Whether it earns its keep depends on your mileage and term. On a 24-month, 8,000-mile contract you may barely see a service, let alone a set of tyres. On a 48-month contract at 20,000 miles a year you will get through consumables, and fixing that cost at the outset is a sensible piece of budgeting. Ask us to price it both ways and compare.

What extra costs should you watch for?

Three: excess mileage if you drive more than your allowance, damage charges if the car comes back outside BVRLA fair wear and tear standards, and an early termination settlement if you need to end the contract before the final rental. None of them are hidden - all three are in the agreement - but they're where the unwelcome surprises live.

Excess mileage

Your contract states a pence-per-mile rate for every mile over the total allowance. It's arithmetic, not a penalty negotiation. Illustrative example: a three-year contract at 10,000 miles a year gives you 30,000 miles. Come back at 32,000 with an excess rate of 8p per mile and you'd owe 2,000 × 8p = £160. The rate varies by vehicle and funder, so check yours.

The practical advice is to be honest about mileage at the quote stage rather than optimistic. Under-declaring to shave a few pounds off the monthly rental is a false economy - the excess rate is almost always higher per mile than the cost of buying the mileage up front. If your circumstances change mid-contract, tell us early; some funders will re-rate an agreement.

Fair wear and tear

Under BVRLA fair wear and tear standards - the industry benchmark published by the British Vehicle Rental and Leasing Association - normal deterioration from careful use is acceptable, while damage from impact, neglect or misuse is chargeable. The standard covers paintwork, wheels, tyres, glass, interior trim, mechanical condition, and whether you've got both keys and the service record.

Get a copy of the guide at the start of your lease, not the week before collection. The BVRLA suggests assessing your car around ten weeks before it goes back - enough time to have a kerbed alloy or a bumper scuff repaired properly, which is nearly always cheaper than the funder's recharge. If you lease an electric vehicle, remember the charging cables need to go back with it.

Ending a lease early

PCH doesn't carry the voluntary termination right that applies to regulated credit agreements such as PCP and HP. If you need out, you ask the funder for an early termination settlement, and it can be expensive - often a substantial proportion of the rentals you'd have paid. Choose your term with that in mind. If there's any real chance your circumstances change within two years, take the shorter contract even if the monthly is higher.

Who does PCH suit - and who should avoid it?

PCH suits drivers who want a new car every two to four years, can predict their annual mileage within reason, value fixed costs, and don't care about owning the vehicle. It suits people badly if they need to build an asset, drive unpredictable mileage, or might need to walk away from the contract early.

PCH is probably right for you if...

• You change cars every two to four years anyway
• You'd rather have a fixed monthly cost than an unpredictable repair bill
• Your mileage is reasonably stable - a commute you can actually count
• You have no interest in selling a used car privately
• You want a newer, better-equipped car than your cash would buy outright

Think twice if...

• You keep cars for six years or more - buying will usually win over that horizon
• Your annual mileage swings wildly, or a job change could double it
• You want the car modified, or you tow with a car that wasn't specced for it
• Your income is unstable enough that a three-year fixed commitment feels risky
• Your credit file is in poor shape - PCH is credit-assessed, and a weak file means a decline or a larger initial rental

Honestly, that last one catches people out. Funders underwrite PCH like any other finance agreement. If you're unsure where you stand, work through our honest leasing checklist first - it's more useful than applying and hoping.

Should you lease personally or through a business?

If you're a private individual, PCH is your route and prices are quoted including VAT. If you're a VAT-registered business, business contract hire (BCH) is usually cheaper because a company can typically reclaim 50% of the VAT on the rentals of a car used privately as well as for business, and 100% on the maintenance element. Company directors and employees have a third option: salary sacrifice.

Benefit in Kind (BiK) is the income tax you pay on a company car made available for private use. Under HMRC's published company car tax rates, the appropriate percentage for a petrol or diesel car runs roughly 15-37% of list price depending on CO2 emissions, while a fully electric car is taxed at just 4% for the 2026/27 tax year. That gap is why salary sacrifice and business contract hire are so heavily weighted towards EVs.

One thing that trips people up: because a PCH car is paid for from your own taxed income and isn't provided by an employer, there's no BiK to worry about at all. Simplicity is part of what you're buying.

How do you take out a PCH lease?

Set your budget and mileage, choose a car, agree a term and payment profile, pass a credit check, sign the agreement and wait for delivery. From application to a car on the driveway is typically a few days for stock vehicles and several weeks or months for factory orders, depending on the model.

A short checklist before you commit

1. Work out your real annual mileage. Look at your last two MOT certificates - the DVLA mileage record is more honest than your estimate.
2. Decide the term. Shorter means a higher monthly rental but less exposure if life changes. Longer spreads the cost but locks you in.
3. Choose the initial rental you can genuinely afford. Nine months up front lowers the monthly, but it's money you won't see again.
4. Compare quotes on identical terms. Same car, same term, same mileage, same profile - otherwise you're comparing nothing.
5. Check what's included. Delivery, road tax, any admin or documentation fee, and whether maintenance is priced in or extra.
6. Read the return standards now. Ten minutes with the fair wear and tear guide at the start saves money at the end.
7. Arrange insurance before delivery day. The driver won't hand over the keys without it.

If the terminology is still getting in the way, our leasing jargon guide translates the lot - GMFV, initial rental, funder, profile, the works.

Frequently asked questions

Written by the leasing team at First Vehicle Leasing, an FCA-authorised credit broker and BVRLA member arranging personal and business vehicle leases across the UK for over 25 years. Reviewed for accuracy against current HMRC, DVLA and BVRLA guidance.