Lease or PCP?
There are many different funding models to help towards driving the car of your dreams, and buying the vehicle outright is just one of them. You have read about the benefits of car leasing elsewhere, but how does leasing compare to other funding models? Notably personal contract purchase, otherwise known as PCP?
Leasing (also known as personal contract hire or PCH) and PCP are very similar products, but with some important differences, and which may suit different motorists in different circumstances. Let us explain:
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Car leasing agreement
A car leasing deal is a long term rental agreement, whereby you pay an upfront deposit and then follow this up with a fixed monthly leasing payment for the duration of the lease agreement. You are free to choose the length of the lease, choose from a list of the best car leasing deals and then can enjoy driving the vehicle exclusively, and when the lease period ends you return the vehicle to the leasing company and are free to choose a new vehicle and start a new lease agreement.
PCP agreement
With a PCP agreement you also agree a fixed monthly payment and you pay this for the duration of an agreed lease period. However, at the end of this period you have the option of paying a pre-agreed lump sum to purchase the vehicle outright, or returning the vehicle to the leasing company and choosing another one.
The benefits of PCP
Ownership is optional and you can enjoy the various benefits of car leasing in the meantime
It is possible to make a profit on the vehicle if it has increased in value during the lease period and is therefore worth more than the purchase price you agreed at the outset of the agreement.
Your monthly payments will be cheaper than an average leasing deal because they are factoring in the bulk payment option to buy the car outright, which you may or may not take-up.
Disadvantages of PCP
If you take up the option to buy the vehicle, you won’t be buying it new, it could be three or four years old and with the service and maintenance, warranty and MOT issues that could bring.
You could go into negative equity in ownership of the vehicle, because you could owe more in the outstanding payment than it is actually worth.
With a PCP deal you pay interest on the entire value of the vehicle during the lease period, even if you don’t eventually buy it.
You need a lump sum saved up and accessible if you intend to exercise the option to purchase the vehicle.
You only have road tax included for the first 12 months of a PCP deal, while with a car leasing/PCH deal it is included for the full duration of the lease.
If you buy the vehicle outright you will have to consider disposal of it when you want to choose a new car.
As you can see, there are many different types of car leasing deal, and there are many pros and cons to PCP deals.
If you would like to know more about leasing, PCP, new or used car leasing deals or EV leasing, contact the experts at Pink Car Leasing today.