Personal and Business Contract Hire Explained

What is Contract Hire?

Personal Contract Hire (PCH) or Business Contract Hire (BCH) allows you (the lessee) to choose the vehicle you want, use it for a set period of time and then give it back to the leasing company (the lessor) at the end of the period of hire. You will pay a fixed monthly rental payment for a fixed period of time, this is based on a fixed annual agreed mileage.

Some PCH and BCH agreements include Annual Vehicle Excise Duty (road tax). Service and maintenance plans are optional but can also be added to the contract.

You are not responsible for the disposal or sale price of the vehicle at the end of the contract. The car is owned by the finance company, you have no option to buy it, and you can not sell it. All rentals will attract VAT at the current rate.

Summary

Initial Rental
Advance Rentals are usually paid at the start of the agreement, these are normally agreed by the lessor and lessee, but 3 and 6 advance rentals are most common.
Fees
The Lessor may charge additional fees, such as arrangement fees. If you are VAT registered, the VAT on the rentals can be wholly or partially reclaimed by the lessee.
Restrictions
You will pay for any excess mileage charge if you have exceed your agreed mileage and/or if the vehicle is not maintained and kept in good condition. The vehicle must be fully insured as well as in a good roadworthy condition.
Ending the Agreement
Once your agreed contract term has run out you can extend the lease on the car or you can choose to hand the car back, subject to restrictions. If you settle early there maybe penalties for doing so.

Advantages of Personal or Business Contract Hire

  • Often the lowest upfront and monthly cost for a brand new car.
  • Full manufacturer’s warranty (please note this may expire before the end of the contract).
  • Road tax, breakdown cover, and servicing often included.
  • You pay monthly rentals and then hand your car back to the finance company at the end of the contract.
  • If you've got your own business and are VAT registered, you maybe claim an element of the VAT back

Disadvantages of Personal or Business Contract Hire

  • You won't own the car – you are just the driver for the term of the agreement.
  • Limited mileage. Excess mileage charges range from 3p to 50p per mile.
  • You will be charged if there is damage to the car.
  • If the car is written off, and the insurer's value is less than the leasing company's, you may be liable for the difference.
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Jigsaw Finance Limited is a credit broker and not a lender. We can introduce you to a limited number of lenders and their finance products. We are not an independent financial advisor; we will provide details of products available, but no advice or recommendation will be made. You must decide whether the finance product is right for you.

We will receive a commission payment from the lender/finance provider if you decide to enter into an agreement with them. The commission payment received is for the introduction and work in facilitating and arranging the finance for you and is a one-off payment from the lender to Jigsaw. The calculation of this commission is based either on a fixed fee or a percentage of the amount you borrow, this is determined and may vary by the commercial agreement Jigsaw has with the lender. We may work with just one lender or a limited selection of lenders when arranging finance. As a Credit Broker, we may also have other commercial arrangements with a lender which do not influence the terms of your finance agreement. We may share some of this commission with the motor retailer.

The amount of commission will be made available to you before signing your finance documents.

All the lenders that we work with pay commissions at different rates, however, the commission received does not affect the amount you will pay under your finance agreement. Our aim is to secure finance for you at the lowest interest rate available from our panel of lenders. Finance may be available from other providers outside of our panel, and you should consider your options before entering into an agreement, we are not able to provide impartial recommendation.