Personal Contract Purchase or Personal Contract Hire? We break down the key differences so you can choose the right deal.
The two most popular ways to finance a car
Walk into any dealership in the UK and you'll be offered either PCP (Personal Contract Purchase) or PCH (Personal Contract Hire). Both involve monthly payments and a fixed term, but they work very differently — and choosing the wrong one can cost you significantly.
How PCP works
With PCP, you pay a deposit, then monthly payments over a fixed term (usually 2–4 years). At the end, you have three options: hand the car back, pay a final "balloon" payment to own it outright, or use any equity as a deposit on a new deal.
The monthly payments are lower than a standard loan because you're not paying off the full value of the car — just the depreciation during your term, plus interest.
Pro tip: PCP gives you flexibility at the end of the term. If the car is worth more than the guaranteed future value, you have equity to use.
How PCH works
PCH (also called leasing) is simpler: you pay a deposit and monthly payments, then hand the car back at the end. You never own it, and there's no option to buy. Because of this, monthly payments are typically lower than PCP.
Leasing suits people who always want a new car, don't want to worry about depreciation, and are happy never to own the vehicle.
Key differences at a glance
The right choice depends on your priorities.
- Ownership: PCP gives you the option to own; PCH never does
- Monthly cost: PCH is usually slightly cheaper per month
- Flexibility: PCP offers more options at the end of term
- Mileage: Both have mileage limits with excess charges
- Modifications: Neither allows modifications to the car
- Business use: PCH VAT is 50% reclaimable for businesses
Which should you choose?
Choose PCP if you want the option to own the car eventually, or if you want flexibility at the end of the term. It's also better if you're unsure about your mileage, as you can negotiate the terms more easily.
Choose PCH if you always want a new car every few years, want the lowest possible monthly payment, and are happy to hand it back with no further involvement. It's particularly good for business users who can reclaim VAT.
Pro tip: Always compare the total cost of credit — not just the monthly payment — when comparing PCP and PCH deals.