Comparison Guide Β· 2026-07-03
Personal Contract Hire (PCH) vs PCP UK 2026
PCH is a pure lease β you rent the car for a fixed term and hand it back with no ownership option, typically at the lowest monthly cost. PCP is finance with an option to buy β you pay lower monthly instalments than a hire purchase, but face a large optional "balloon" payment at the end if you want to keep the car. If you always want a new car every 2β3 years and never want to own it, PCH is usually cheaper; if you might want to keep the car, PCP is more flexible.
At a Glance
| Feature | Personal Contract Hire (PCH) | Personal Contract Purchase (PCP) |
|---|---|---|
| Ownership option at the end | None β always hand the car back | Yes β pay the optional final payment (balloon) to own it |
| Typical monthly cost | Lowest of the three main options (PCH, PCP, HP) | Low, but slightly higher than PCH for the same car |
| Deposit | Usually 3β9 months' payments upfront | 10%+ deposit typical, though 0% deposit deals exist |
| Mileage limits | Fixed annual limit, excess mileage charges apply | Fixed annual limit, excess mileage charges apply |
| Maintenance package | Often bundled in (optional add-on) | Not included β separate warranty/service plan |
| Early termination | Can be very costly β often the most restrictive of the finance types | Possible via voluntary termination after 50% of total payments made |
| VAT reclaim for businesses | Companies can reclaim 50% of VAT on the lease rental if used partly for business | More complex β VAT treatment depends on structure |
When Personal Contract Hire (PCH) Wins
- You want the lowest possible monthly payment and always want a new car every few years
- You never intend to own the car outright
- You want maintenance bundled into one predictable monthly cost
- You are a business wanting to reclaim VAT on rentals
When Personal Contract Purchase (PCP) Wins
- You are not sure whether you want to keep the car β PCP defers that decision to the end of the term
- You might want to own the car outright eventually by paying the balloon payment
- You want the flexibility to part-exchange the car into a new PCP deal using any positive equity
Frequently Asked Questions
Can you own the car at the end of a PCH lease?
No β PCH (Personal Contract Hire) is a lease with no ownership option built in. You simply return the car at the end of the agreed term, provided it is within the agreed mileage and condition guidelines, and any excess mileage or damage charges are settled.
Which is cheaper, PCH or PCP, for the same car?
PCH is usually cheaper per month because the finance company retains 100% of the risk on the car's future value and never offers you a purchase option, so the monthly rental reflects only the depreciation and interest over the lease term. PCP monthly payments are calculated similarly but the agreement also has to account for the optional balloon payment structure, which can make PCH marginally cheaper for an identical car and mileage.
What happens if I exceed the mileage limit on PCH or PCP?
Both agreements charge an excess mileage fee, typically 3pβ15p per mile depending on the car and lender, charged at the end of the contract for every mile over the agreed annual allowance. It is almost always cheaper to negotiate a higher mileage allowance upfront if you know you will exceed the default limit, rather than pay the excess fee retrospectively.
Show 2 more questionsShow fewer questions
Can businesses reclaim VAT on PCH and PCP?
VAT-registered businesses can typically reclaim 50% of the VAT on PCH lease rentals if the car has any private use, or 100% if used exclusively for business. PCP is treated differently for VAT purposes because it is a finance/purchase agreement rather than a pure rental β the VAT treatment depends on whether the balloon payment is expected to be exercised, so specialist accountancy advice is recommended.
Is PCP or PCH better for a company car?
For sole traders and companies wanting simplicity and predictable costs with no residual value risk, PCH (leasing) is usually preferred, especially where maintenance packages are bundled in. PCP suits businesses or individuals who want the option to eventually own the vehicle, though the balloon payment must be budgeted for separately if exercised.
Key Sources
Related Comparisons
Calculators for this comparison
Loan tool
Calculate monthly loan repayments, total interest and cost of borrowing.
Car Running Cost tool
Calculate the total annual cost of running a car including fuel, insurance, tax and servicing.
Road Tax Calculator
Calculate Vehicle Excise Duty (VED/road tax) based on fuel type and CO2 emissions.
Electric Car Savings tool
Compare EV vs petrol running costs across home and public charging.
Disclaimer: This comparison is general information, not personal financial advice. Figures reflect the 2026/27 UK tax year and can change. Always check current HMRC/gov.uk guidance or speak to a regulated adviser before making a decision.