PCP or Lease: What to Choose?
If you are thinking of getting behind the wheels of a car, then there are two popular options of car finance known as leasing (also known as Personal Contract Hire or PCH) and Personal Contract Purchase (PCP). Both are great alternatives for renting or buying a car. To pick between them, you must first determine the type of vehicle you want to drive, the amount of money you want to spend up-front and every month, as well as any ownership choices.
That’s why brokers from Carplus are here to assist you in determining what is the difference between leasing and PCP and which option is best for you. For more information about financing a car and other related topics, you can check out the website.
What Exactly Does Car Leasing Mean?
Car leasing occurs when you are borrowing it for long-term, typically two to four years, where you pay a set monthly amount for a brand-new car in addition to the initial payment in the form of a deposit, which is normally between three and twelve months’ worth of payments.
The car leasing company is always the owner of the vehicle. You return the leased car to the car leasing company after your contract. Unlike other options, you do not have the option of eventually owning the car.
When returning the vehicle, make sure you have adhered to the agreed-upon annual mileage and that it is in a condition that indicates reasonable use without any major damage.
What Exactly Does PCP mean?
PCP, also known as PCP car finance loan, is a type of financing that allows you more freedom at the end of your agreement. In the case of PCP, you won’t be paying the full price of a vehicle. Instead, after you’ve put down a deposit, you make monthly fees that only cover a portion of the car’s cost – the amount of value that the vehicle is estimated to lose during the period of the contract.
This makes payments more affordable comparatively and means that you don’t own the vehicle automatically after making all the monthly payments with PCP. At the end of your PCP contract, you have the below options:
- You can either return your vehicle to the lease provider in good condition within the mileage limit.
- You can trade your vehicle for a new one and use any equity toward a deposit on another car.
- Settle the remaining balance of the finance, known as the optional final payment. You can pay a lump sum known as a “balloon payment” to purchase it, which will be pre-decided by the finance company at the start of the contract.
What Is the Difference Between a PCP and a Lease Finance?
PCP and leasing are more different than they appear. To help you understand it, we have put together the table below to emphasize the overall differences.
|Option of Owning the Vehicle||Yes||No|
|Manufacturers’ Warranty||Not Covered.||Covered|
|Good Credit score||Not necessary||Necessary|
|Road Tax and Breakdown package||Not covered||Covered|
When Is PCP the Best Option for You?
PCP provides flexible options by offering for both new and secondhand vehicles along with other benefits explained below:
- Option to own the vehicle – PCP is generally preferable if you want to own the vehicle at the end of the contract. It is possible to make a balloon payment in a final settlement and own the vehicle at the end of the contract.
- You know the vehicle in and out – Another benefit of PCP is the optional final payment to own the vehicle is that you know the vehicle’s complete history, which is far superior to buying a used vehicle with an unknown history.
- Trade-in or resale value – There will be zero to minimal change in these values in the case of PCP because the amount you have to pay is pre-determined at the contract’s start.
When Is Leasing the Best Option for You?
Leasing a car has some amazing benefits, which explained below:
- New car every few years – Leasing a car lets you drive a new model at extremely low prices because you can simply hand your car back and enter a new contract.
- Payments include maintenance and costs – These costs rolled into your monthly payments. This means that you won’t have to pay more if you don’t exceed your annual
- Mileage or have excessive wear and tear.
- No liability – You return the vehicle after the contract with a car lease, and it is no longer your property. This means you won’t have to worry about selling it or losing money due to depreciation.
Common Features Between Leasing and PCP Finance
Below are the similarities between PCP and leasing finance:
- In both cases, if you exceed the pre-agreed mileage limit or cause damage to the car beyond fair wear and tear, you need to pay additional costs.
- In both cases, you have to pay fixed monthly fees along with a deposit.
- In both cases, you have to pay early redemption charges if you want to close the contract before the pre-determined due date.
Which Option Is the Most Suitable for Me?
Consider the following factors when deciding which Finance option is best for you:
- Whether you want to be able to own the vehicle – Choose PCP finance.
- If you want to drive a new car every few years – Choose to lease a car.
- Your budget and financial situation – PCP finance is a costlier option.