Personal Contract Purchase (PCP)
PCP was first introduced in the early nineties by various motor manufacturers, the most
recognised schemes were Ford’s options 12&3 or Peugeot’s ‘passport scheme’. These schemes
were designed for people to be able to drive higher specification cars than they could traditionally
afford. This was achieved by deferring a large proportion of the vehicles capital cost referred to as the
‘balloon payment’ to the end of the contract period thus you only pay a proportion of the cost. You do
however get charged interest on the balloon amount and APR’s can appear high due to this reason. . .

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Personal Contract Hire (PCH)
Leasing is traditionally used for company car fleets but is growing in popularity for
private individuals. You never actually own the car you simply rent it for a fixed period of time usually
between 2 & 5 years and agree to keep within a set mileage that is agreed at the start of the
agreement. You pay a relatively small deposit usually 3 or 6 monthly payments followed by either
23/35/47/59 payments. You have the option for an additional monthly fee to include a maintenance
package that will cover routine services & tyre cover . . .

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Contract Hire
By far the most popular form of leasing for businesses. Contract Hire is exactly as the
name suggests, you simply enter into an agreement to hire a vehicle over a fixed period of time with a
pre-agreed annual mileage. This is labelled as a lease agreement and as with most business leases
the monthly rental will attract VAT at the prevailing rate but because it is a lease agreement and not a
purchase agreement you are able to claim a proportion of the VAT back depending on the business
usage . . .

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Contract Purchase
Contract Purchase has evolved from Hire Purchase main difference being as with PCP
there is a ‘balloon payment’ at the end of the contract thus reducing the balance financed resulting in
low monthly repayments. The deposit is typically 10% and the payments over a 2 to 5 year period. At
the end of the contract you have three basic options, you can either settle the balloon amount and
own the vehicle, sell the vehicle and once the balloon has been settled you can pocket any profit or
should the vehicle not be worth the settlement amount you can hand the keys back and walk away as
this figure is guaranteed by the finance company . . .

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Finance Lease
Finance lease is a flexible form of Contract Hire where you enjoy the benefit of driving a
car without the attendant issues of owning it. The monthly repayments are calculated assuming a
future ‘balloon value’ at the end of the contract which is set based on the pre-agreed annual mileage.
As with Contract Hire because it is a lease agreement the rentals are subject to VAT at the prevailing
rate and you can claim a proportion of this element back depending on its usage. . . .

to read more click here (PDF)