subject: Leasing Car: Benefits And Drawbacks [print this page] Looking for a car? Worried about huge funds? If your answer is Yes, then you have two choices. Either you can take a bank loan for buying the car or you can lease a car from leasing companies. Paying back a loan will be a burden for many as the interest rates and monthly payment amounts are high. Instead, if you go for leasing car, you dont have to worry about the above two things. Further reading will help you learn more about leasing a car for your personal use.
Mainly there are two options for leasing car. One is Personal Contract Hire and the second is Personal Contract Purchase.
PCH - Personal Contract Hire
This type of leasing car option is mainly intended for personal users. It is a contract between a person and car leasing company or dealer. With Personal Contract Hire one can use the car for a fixed period usually between two to four years and a fixed mileage will be set by the leasing company. One has to pay a monthly payment to the dealer or leasing company. Monthly payments are calculated on the basis of expected residual value of the car at the end of contract. At the end of the fixed time period (that is the PCH agreement) one can hand back the car to the company or can replace the used car with a new one by signing a new contract.
At the end of Personal Contract Hire agreement one has to pay charges for car damages. One will also have to pay charges for additional mileage used to that consent.
Personal Contract Hire agreement comprises of road tax paid by the leasing company or agent.
Advantages of Personal Contract Hire (PCH)
Individuals can choose a new car and the latest models with lower initial payments. There will be fewer financial risks as one makes monthly payments and interest rates are comparatively lower. Personal Contract Hire is cheaper than buying a car. Maintenance package provides less stress to the user. It also has Value Added Tax benefits.
Disadvantages of Personal Contract Hire (PCH)
At the end of agreement you cannot own a car. Mileage use will be limited and it is a major disadvantage of Personal Contract Hire. For canceling the agreement, one has to pay some charges and it depends on the contract.
Personal Contract Purchase (PCP)
The Personal Contract Purchase form of agreement is much similar to Personal Contract Hire and there is only one difference. The Personal Contract Purchase form of agreement gives you an option to buy the car at the end of lease term where Personal Contract Hire will not have this option.
The final bulk payment you have to pay at the end if you buy the car is called as the balloon payment. Before making the lease contract, this amount will be agreed upon and it is calculated as the minimum cost of the car at the end of the agreement.
Personal Contract Purchase also covers a maintenance package.
Advantages of Personal Contract Purchase (PCP)
One who chooses Personal Contract Purchase will have to pay a smaller amount of money as initial deposits and the monthly payments are also lower. If you dont wish to buy the car you can just hand it back to the leasing company. At the end of the term of agreement, if one wishes to buy car he/she can do so.
Disadvantages of Personal Contract Purchase (PCP)
At the end of PCP agreement, if you go for buying the car, it will be a more expensive method compared to hire purchase. If the agreed mileage limit exceeds then one has to pay penalties.
The advantages of leasing car always overweigh the disadvantages. The only thing one has to make sure before leasing car is that he/she chooses a good car with warranty coverage and maintenance package.
