Personal contract hire (PCH) and business contract hire (BCH) are two of the main types of car leasing options available in the UK. They’re both pretty similar and they both offer some useful benefits. I decided to compare the two and see which is better.
Let’s see who is the winner when it comes to PCH vs BCH.
Car finance definitions
Before we compare the two types of car finance, let’s actually pin down what they both are:
- Personal contract hire explained: PCH is a type of car finance where you lease a car from a finance company for a specific length of time and then give back when the agreement comes to an end. You’ll pay a deposit at the start of the agreement and work out your payment schedule with the finance company – generally if you put down a larger deposit at the start, your monthly payments will be smaller overall. You usually get this type of contract hire for personal rather than for business use.
- Business contract hire explained: BCH is really similar to personal contract hire. Both operate on the same principle – that you lease a car for a fixed period of time, paying fixed monthly payments and interest, and then returning it when you’ve come to the end of the agreement. The difference with BCH is that this contract is only available to businesses.
What’s the difference between PCH and BCH?
The difference between personal contract hire and business contract hire is pretty simple to work out – it’s about how you use the car. Essentially, one type of contract is used to get a car for personal use (PCH) and the other is used to get a car for business use (BCH). You might find that business contract hire agreements have slightly lower monthly payments than purchase contract hire. Both will generally have access to the same range of cars and both should offer the same flexibility in terms of working out your deposit and monthly payments.
There’s also a difference between PCH and BCH, in terms of tax. Leasing can be an attractive option for a lot of businesses because the cost of monthly payments can be offset against taxable profits, making your overall tax bill smaller. If your business is VAT-registered, you can also claim back a percentage of VAT too, based on the emissions of the vehicle and how you use it (eg. business or personal use).
Round #1 — Affordability
The two types of car finance are very similar, but business contract hire wins the affordability round because of some useful perks: it can often work out cheaper than personal contract hire because of the fact that you can reclaim a lot of expenses back through tax.
Monthly instalments can be claimed back as a business expenses. So can fuel. The amount of money that you can claim back will depend on the CO2 that your car gives off – emissions higher than 130g/km will see you only able to claim back 80% of the total. You’ll be able to reclaim the full amount if your car’s emissions are under 100%.
If the car is being used just for business, you’ll be able to claim 100% of VAT back. Leasing can be an attractive option for a lot of businesses because the cost of monthly payments can be offset against taxable profits, making your overall tax bill smaller. If your business is VAT-registered, you can also claim back a percentage of VAT too, based on the emissions of the vehicle and how you use it (eg. business or personal use).
The differences between the two in terms of affordability are pretty tiny though, to be honest, so don’t be beating yourself up if you don’t run your own business.
Winner: Business contract hire. Even though the two are essentially the same, you’ll often find that BCH agreements have slightly better rates than PCH agreements. You’ll be able to claim tax back through BCH too.
Round #2 — Flexibility
Personal contract hire is probably the best to choose when it comes to flexibility.
As you’re using the car solely for personal use, you won’t have to climb that mountain of paperwork when it comes to claiming back VAT and expenses against tax – people on BCH leases need to be fairly strict on documenting these things each month to make sure they get back everything they’re entitled to.
At the start of a PCH agreement, you’ll be able to negotiate your monthly payment and how long you pay it for. The general rule of thumb is that putting down a larger deposit at the start of the agreement will mean smaller monthly payments over the course of the lease. The opposite is also true – put down a very small deposit and expect to pay more in terms of monthly payments.
Some dealers and finance companies offer zero deposit schemes and 0% interest schemes to entice you in too, so do a bit of shopping around to find the deal that’s best for you.
- Winner: Personal contract hire is probably best if you’re looking for flexibility, use your car for personal use and don’t want to fill out miles of tax forms.
Round #3 — Choice of car
One of the best things about leasing rather than buying is that you get access to the latest new cars and models every couple of years.
New cars are great but they’re plagued by depreciation in value. For instance, a car generally loses around 60% of its value over the course of three years. A new car definitely is not an investment that holds its value.
It can be difficult to recoup enough money from the sale of a car to cover the cost of a new one – chances are you’d need to top up the figure with money from another source. Leasing makes much more sense, completely eliminating the worry about losing money that can come with trying to sell a car you own.
You’ll be able to get great access to the latest cars with both purchase contract hire and business contract hire, so when it comes to choice of car, either is a good option.
Thanks to the fact that you give the car back at the end of the contract, you’ll be able to get access to the latest cars – a benefit of not being tied down to a particular car through ownership.
- Winner: Both! PCH and BCH both provide great access to the latest cars.