Contract Hire vs PCP?

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Thu 3 Jun 2021 19:12
Contract Hire vs PCP? - Graham567

I get WhatCar magazine every month and the PCP and Contract Hire deals are really confusing me.

I'll try to explain.

A Hyundai Kona Electric on PCP IS £3400 deposit and £414 per year for 3 years.

This comes to £18,304.

The same car on Contract Hire is 3 month deposit of £648 and then 3 years at £216 per month.

Total £8,424.

So if,like most people,you hand the car back then the contract hire is going to be £10,000 cheaper?

So why do people take out PCP's and why isn't contract hire more popular?

The above prices are generally consistent every month with contract hire being MUCH cheaper than PCP.

Edited by Graham567 on 03/06/2021 at 19:13

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Thu 3 Jun 2021 21:46
Contract Hire vs PCP? - Marlin1

The contract hire company claims back the VAT on the cost of the car as part of their VAT return.

They rent the car to you and you pay VAT on the rental amount only. This is what makes it cheaper.

They also get a huge discount which helps them reduce the cost.

The issue is that nearly every lease company will refuse to sell the car to you at the end of the lease because it muddles the VAT issue - i.e. the lease company has to deal with the VAT differently if the car is going to be kept by the renter - i.e. they have to charge it, negating the saving.

You can buy the PCP based car at the end of the initial period after paying the balloon payment.

If you could buy the contract hire car at the end of the lease then the cost is not going to be much different, save for the bulk buy discount the lease co gets, but of course they don't have to pass that on to you.

Edited by Marlin1 on 03/06/2021 at 21:47

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Thu 3 Jun 2021 21:59
Contract Hire vs PCP? - Graham567

But everyone i know just hand the car back at the end of the three years.They don't ever have any intention of owning it.

There must be a good reason as to why pcp is more popular?

Is handing a car back at the end of a lease more difficult? ie Do they go over it with a fine tooth comb(although I assume that's it's the same when you hand it back at the end of a pcp)

What I want to know is that if you have no intention of ever owning the car,then why is pcp the more popular choice when leasing it is obviously much cheaper?

Edited by Graham567 on 03/06/2021 at 22:00

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Thu 3 Jun 2021 22:25
Contract Hire vs PCP? - SLO76
PCP is more popular because dealers and manufacturers push it, in fact many dealers including major chains simply don’t offer contract lease. I leased a Honda CRV new back in 2014 for 4yrs at a very decent rate. I shopped around online then called dealers to see if any would match it or get close and while one did get close enough to take my money, substantially discounting Honda’s own contract hire rates while most weren’t interested in leasing at all. By my calculations it worked out marginally cheaper than the depreciation on a new discounted car paid for via a low rate bank loan but the restrictions of the annual mileage limit and the inability to buy the car at the other end killed the idea for me. I returned to buying used via personal loan. I now have far greater flexibility and can exit the car if circumstances change instead of being tied for 3/4yrs.

I’m no fan of PCP’s but done right and with a strong enough credit rating to take advantage of dealer/manufacturer subsidies then paying it off with a lower rate bank loan then it can be a clever way to buy a new car but I hate the never ending payment idea. I buy a car, pay it off and keep it for years after assuming it’s a good one. I’m then left with a vehicle with thousands of pounds of equity to put into another deal or keep as I see fit.

The industry push PCP because it’s more profitable to keep you in a constant cycle of payment and effectively push a new car on you every few years. Be wary with both lease and PCP as they charge for any paint damage at the end, often using it as a tool to badger you into taking another car with them. “We’ll wave that £1,500 charge if you sign up for another one sir.” My CRV when it was returned was nearly mint with a full dealer history. It had a couple of tiny stone chips and minuscule scratches yet the representative filled in load of comments on his appraisal sheet. They didn’t in this case attempt to get anything more than the excess mileage out of me however but many others I’ve known have been stung.

Edited by SLO76 on 03/06/2021 at 22:31

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Fri 4 Jun 2021 00:03
Contract Hire vs PCP? - veloceman
Contract hire also includes Road Fund License I believe.
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Fri 4 Jun 2021 00:14
Contract Hire vs PCP? - Marlin1
Contract hire also includes Road Fund License I believe.

Yes, but it is built in to the price so you are paying for it.

And if it goes up most lease cos will charge you the extra cost.

Also, if the VAT rate changes, so, I believe will the payments for the entire remainder of the lease as the payments include an element of VAT.

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Fri 4 Jun 2021 08:19
Contract Hire vs PCP? - daveyjp

PCP is merely a loan, so you borrow all the cost of the car less the deposit and interest is therefore due on this amount, including interest on the money borrowed to pay the VAT, delivery charges etc etc,

Contract hire is renting and as above the VAT is treated differently. You do need to check mileage restrictiona on both, highly likely its only 5-6,000 a year. Once you increase this the costs can rise significantly.

On PCP if you are keeping the car you can exceed the mileage with no comeback, there's also an argument that if you hand the car back before the end of the term extra charges can't be made for excess mileage.

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