Selected all your options? Now click here >>
Quick contact

Leasing terminology explained - know your PCH from your PCP

Do you know the difference between contract hire and lease purchase? No? Don’t worry a lot of people don’t and when faced with complex terminology it can be daunting.

Leasing a vehicle should be a straightforward process and here at V4B we like to make that process as simple as possible.

The British Vehicle Rental and Leasing Association (BVRLA) sends us lots of literature throughout the year. In one of its guides it outlines the different options available for financing a vehicle.

Here is some of the information from the guide which hopefully will help you to understand the difference between some of the funding methods available:

CONTRACT HIRE (Personal contract hire PCH or business contract hire BCH)
Contract hire is the main type of vehicle leasing. It sees a user hire a car for a set period and pre-determined maximum mileage at fixed monthly rentals. There is no option for the hirer to purchase the vehicle and at the end of the contract it is returned to the leasing company. Maintenance packages can be added which usually include tyres, servicing, oil changes, MOT and breakdown cover.

Personal car plans enable the user to finance the vehicle for a contract period to suit their needs, with the supplier offering an option to guarantee the future value of the vehicle. At the end of the agreement there are three options:

•exchange the car for a new one
•purchase the vehicle outright
•return it without further cost (subject to mileage)

By funding the difference between the purchase price and the residual value at the end of the scheme (rather than the full value of the car), monthly costs can be reduced compared to traditional car loans. Maintenance packages can also be added.

As with contract hire, a finance lease allows the lessee to hire a vehicle for a fixed monthly fee, with the vehicle remaining the property of the leasing company. However, using a finance lease means that the vehicle will appear on the lessee’s balance sheet, with outstanding rentals represented as a liability because the risks and rewards of ownership rest with the lessee.

Contract purchase essentially sees a customer agree to purchase a vehicle via a series of monthly instalments. Ownership passes to the purchaser at the outset or the end of the contract, depending on whether a conditional sale or credit sale agreement is used.

Another method of achieving vehicle ownership is hire purchase (also referred to as lease purchase). Under this type of agreement, the purchaser in effect takes out a loan to buy the vehicle from a third party.

Share this article Post this page to facebookTweet this pageGoogle+ this pagePost this page to LinkedinPin page

Posted on 8th October 2018 at 1:31 PM

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on this website. However, if you would like to, you can change your cookie settings at any time. Close this message.