PCP or PCH? How are you funding your new '20' plate vehicle
Wednesday 26th February 2020 15:19:50
How are you financing your new '20' plate car, PCP or PCH?
We are a few days away from the herald of the new '20' plate vehicles on the roads of the UK. A 'new reg day' used to be quite an event in car showrooms - remember people leaving the forecourts at midnight? And the game of 'spot the new reg' that would keep kids quiet for hours in the car.
The signifier of new registrations changed from a letter to a number in September 2001. Since that time the kudos of having a new reg may have lost it's luster a little.
That said, there is still quite some satisfaction driving away from a dealer in your new car on a 'new reg'.
There is a range of new car deals in the UK market, buoyed by manufacturers trying to break the Brexit sales lull. These deals are often driven by a finance package. Often this leaves consumers a choice between two:
Personal Contract Purchase (PCP)
Personal Contract Hire (PCH)
PCP or PCH?
Both types of finance feature a deposit, then set monthly payments over a fixed term (often between 2 and 4 years). It is at the end of the period that the main differences occur.
With a PCP agreement you have three choices at the end of your term:
You can buy the car for the Guaranteed Future Value (or GFV). This is set into your agreement from the very beginning.
You can trade the vehicle in for a new one. Any value above the GFV is equity you can use towards the deposit on a new deal.
Hand the vehicle back with no further payments to make.
The key is that you can own the vehicle at the end of the agreement, if you want, by making the final GFV payment.
With a PCH deal, your only option is to hand back the vehicle to the leasing company. You never have the option to buy the vehicle written into your PCH agreement. Effectively it is a fixed-term rental agreement.
There are advantages and disadvantages to each method of financing. At Total Loss Gap we have produced a short video to explain this further.
The rise in popularity in PCP deals was first seen in the late 1990s. Manufacturers promoted their own brand of Personal Contract Purchase agreements. Peugeot had Passports, Citroen had Elect3, Ford has Options and VW has Solutions.
These are still very popular today.
But, with the rise of independent leasing brokers, more consumers now look to PCH deals. PCH often provide lower 'up-front' deposits (aka advanced rentals) and lower monthly payments. You do not have the option to own at the end. This can suit some people's needs to a tee.
So what will your new '20' plate be? On PCP or PCH?
Whatever your choice will be, understanding what your financing provides is important. The great news is there has never been so much choice, and value, to choose from.
Remember, Total Loss Gap provides a range of financial protections for both PCP and PCH deals. For more information please try:
GAP Insurance for PCP : https://totallossgap.co.uk/gap-insurance-cover-for-pcp-finance/889
GAP Insurance for PCH lease : https://totallossgap.co.uk/contract-hire-lease-gap/837
SMARTCare Cosmetic Insurance (to protect against cosmetic damage hand back charges) : https://totallossgap.co.uk/smartcare-cosmetic-insurance/906