PCP vs lease: what’s the difference?

The biggest difference between PCP and a lease is what happens at the end. With personal contract purchase (PCP), you can make a final payment and keep the car. With a personal lease, also called personal contract hire (PCH), you hand it back and choose your next one. That's what the PCP vs lease choice comes down to, and it shapes everything else, from your monthly payments to how much you'll pay overall. Both options spread the cost into fixed monthly payments, and both come with mileage limits.

TL;DR

• PCP is a type of car finance. You pay a deposit and monthly payments, then choose whether to pay a final balloon payment to own the car, hand it back or trade it in.
• PCH is a long-term lease. You pay an initial rental and monthly payments, then return the car when the contract ends, with no option to buy it.
• Monthly payments on PCH are often lower than PCP for the same car, because you're not paying towards owning it.
• Both come with mileage limits, and you could be charged for damage beyond fair wear and tear when the car goes back.
• Our own personal lease is a type of PCH with servicing and maintenance included.

Personal contract hire is a long-term rental. You pay an initial rental, usually worth a few monthly payments, then a fixed amount each month for the length of the contract. That's typically two to five years. At the end, you hand the car back. There's no final payment to make and no option to buy.

Because the car never becomes yours, you don't need to worry about what it's worth when you're done. Depreciation is the leasing company's concern. Some PCH deals also include servicing and maintenance, but it isn't standard with every provider, so check what's covered before you sign.

• Mileage limits: You agree to an annual mileage at the start. Go over it and you'll usually pay a set charge for every extra mile.
• Condition on return: The car needs to come back in good shape, or you might face end-of-contract charges. Most leasing companies, Octopus EV included, follow the BVRLA fair wear and tear guide on what counts as normal use. It's still worth reading your provider's terms before you sign.

PCH might suit you if you like driving a newer car every few years and would rather not deal with selling one on.

Personal contract purchase is a type of car finance. You pay a deposit, then fixed monthly payments over an agreed term, usually two to five years. Those payments don't cover the car's full price. They cover the gap between what it costs now and what it's expected to be worth at the end, plus interest. That's why they're lower than a standard car loan.

The expected end value is agreed at the start and is called the guaranteed future value (GFV). When your agreement ends, you can choose to:

1. Buy the car: Make the final balloon payment, which matches the GFV, and the car is yours.
2. Hand it back: Return the car with nothing more to pay, as long as you're within your mileage limit and it's in good condition.
3. Trade it in: If the car's worth more than the GFV, that difference (your equity) can go towards a deposit on your next car.

MoneyHelper has a useful guide to how PCP car finance works if you'd like more detail. PCP may be a good fit if you want lower monthly payments than a car loan but like keeping the option to own.

PCH keeps things simple. You get lower monthly payments and an easy handover at the end, but you give up any chance of owning the car.

• Lower monthly payments: PCH payments are often lower than PCP for the same car, since you're only paying to use it.
• No depreciation risk: What the car's worth at the end of the contract isn't your problem.
• Simple handover: When the contract ends, you return the car and pick a new one. No selling and no part-exchange.
• Maintenance can be included: Some providers build servicing and maintenance into the monthly price, which makes budgeting easier.

• No way to buy the car: When the contract ends, the car goes back.
• Mileage limits: Going over your allowance means extra charges.
• Damage charges: Anything beyond fair wear and tear could be charged when you hand the car back.
• Few modifications: The car isn't yours, so changes are usually off limits.

The main draw of PCP is the choice it gives you at the end. That flexibility usually comes at a price, though.

• The option to own: Want to keep the car? Make the balloon payment and it's yours.
• Room to change your mind: You don't have to decide until the end. Buy it, hand it back or trade it in.
• Lower payments than a car loan: Because you're not paying off the full price, monthly costs tend to be lower than with a traditional loan.
• Possible equity: If the car is worth more than the GFV at the end, you can put the difference towards your next one.

• Higher monthly payments than PCH: You're paying towards a car you might own, so payments are often higher.
• It can cost more overall: Interest is usually charged on the full amount borrowed, balloon payment included. If you plan to hand the car back anyway, PCH could work out cheaper.
• Mileage and condition rules: Just like PCH, going over your mileage or returning the car with damage can mean extra charges.
• Few modifications: Until you've made the final payment, the car belongs to the finance company, so changes are usually off limits.

Ownership is the big one. PCP gives you the option to buy the car at the end and PCH doesn't, which is why PCH payments tend to be lower. Both have mileage limits and condition rules, and neither usually lets you modify the car. Here's how they compare side by side, alongside personal leasing from Octopus EV (PCH).

Terms vary between providers, so check the details of any agreement before you sign.

It depends on how you see the car. If you might want to keep it, PCP gives you that choice at the end. If you'd rather treat it like a subscription, driving it for a few years and then swapping, PCH may be the simpler option.

PCP might suit you if you:

• Want the option to own the car by making the final balloon payment
• Like being able to decide at the end whether to buy, return or trade in
• Would like the chance to build equity towards your next car

PCH could be the better fit if you:

• Want predictable monthly payments
• Enjoy changing to a newer car every few years
• Don't want the hassle of selling the car on
• Like the idea of maintenance bundled into your payment, where your provider offers it

This article explains how each option works rather than recommending one. For advice on your own finances, speak to a qualified financial adviser.

Our personal leasing option works like PCH. You choose an electric car, pay a fixed amount each month and hand it back at the end. On top of the car, you get:

• New and used electric cars: Choose from the latest EVs or used electric cars, which can come with lower monthly payments.
• Servicing and maintenance included: Servicing, maintenance and repairs are part of your monthly payment.
• Cheaper home charging: Get Octopus Energy's Intelligent Octopus Go - EV Saver tariff, with a discounted rate that's exclusive to Octopus EV drivers. It charges your car automatically when electricity is cheaper.
• Easier public charging: Pay in the app or with a tap, and get 10% off public charging with Octopus Electroverse.

Not sure leasing is for you? Here’s our guide on whether you should buy or lease an electric car. And if your employer offers EV salary sacrifice, that's another way to drive electric, with the cost taken from your pre-tax salary. Our guide to leasing explains how the options compare.

Monthly payments on PCH are often lower than on PCP for the same car, because you're paying to use it rather than working towards owning it. Over the whole contract, which works out cheaper depends on the deal, the deposit or initial rental, and whether you'd make the final PCP payment.

Usually not. Personal contract hire is a rental, so the car goes back to the leasing company when your contract ends. That's the trade-off for lower monthly payments. If you want the option to own, personal contract purchase includes a final balloon payment that lets you keep the car.

A balloon payment is the optional final payment at the end of a PCP agreement. It's set at the start and matches the car's guaranteed future value, which is what the finance company expects the car to be worth when your contract ends. Pay it and the car is yours. Skip it and you can hand the car back.

With either agreement, you'll usually pay an excess mileage charge for every mile over your allowance. The rate is set out in your contract. If you think your driving might increase, agreeing a higher annual mileage at the start can work out cheaper than paying for extra miles at the end.

Yes. Personal contract hire is what most people mean by leasing a car as an individual. You pay to use the car for an agreed time and mileage, then return it. PCP works differently, because it's a finance agreement that gives you the option to own the car at the end.