Leasing a car with bad credit can be tough, after all, most leasing companies are tailored specifically to those who have an impeccable financial record. However, there are a number of specialist bad credit car leasing companies out there that are able to provide a lease to those who have suffered some kind of financial misfortune.
Generally speaking, the most popular type of car lease is a Personal Contract Hire (PCH) and this is also likely to be the most suitable leasing option if you have one or more missed payments, defaults or CCJs.
What is PCH?
PCH is, as the name might suggest, a long-term hire agreement. Essentially, it means that although the car is in your possession for the duration of the agreement, you will never legally own it. Instead, you are simply paying to use the vehicle for a fixed period of time.
With this in mind, it could easily been seen as dead money in the same way that you might refer to renting a property as being dead money. However, given the fact that PCH removes the worry of depreciation and can enable you to drive a higher spec car than you might otherwise be able to afford if you bought it outright or via other forms of finance, it’s not necessarily such a bad thing.
When broken down into the following three sections, PCH is fairly easy to understand:
PCH kicks of with an initial rental that usually amounts to between three and six monthly payments. This is essentially a non-refundable deposit that is paid upon commencement of the agreement.
For example: If your monthly payments are £250 and the leasing company require an initial rental of 3x your monthly payment, the initial rental would be £750.
However, first things first, in order to calculate your monthly payments, the leasing company will ask you to specify an annual mileage allowance, this goes up in increments of a 1,000, usually starts from 4,000 and can often go as high as 25,000.
Following this, the leasing company will be able to estimate how much your chosen car will be worth at the end of the agreement. Often referred to as the residual value, this amount is deducted from the purchase price along with the aforementioned initial rental. Finally, the remaining balance is divided out over a duration of between 12 and 60 months.
At the end of the agreement you simply return the car to the leasing company and provided there is no damage and you haven’t exceeded your mileage allowance, there’s nothing to pay. On the other hand, if you have exceeded the mileage allowance, there will be an additional cost per mile to pay. Meanwhile, damage will be charged accordingly.
Pros of PCH
- No interest to pay – As PCH is essentially a long-term hire agreement and not a more tradition finance agreement, there’s no interest to pay.
- No need to worry about depreciation – As you will never actually own the car there’s no need to worry about it dropping in value over time.
- Available to people with bad credit – Some types of car finance are notoriously difficult to obtain with bad credit. However, PCH is a little less tricky to obtain and there are a number of leasing companies that may be able to assist.
- Optional maintenance package – With PCH you have the ability to add a maintenance package that can include things such as servicing and replacement tyres.
- Lower monthly payments – Because you are not paying to own the car, PCH is likely to offer you lower monthly payments than alternatives such as Hire Purchase.
- Higher spec car – Given the fact that PCH is likely to offer lower monthly payments than other types of finance, the chances are you will be able to obtain a higher spec car than you might otherwise be able to afford.
Cons of PCH
- You will never own the car – Unlike other types of finance, PCH is an outright hire agreement and there is no option to won the car.
- Fixed mileage allowance – PCH comes with a fixed mileage allowance and exceeding it will result in an additional cost per mile. This often ranges from 6p upwards.
- Comprehensive insurance is compulsory – With a PCH, the leasing company will dictate that you purchase fully comprehensive car insurance.
- Damage must be paid for – Upon returning the car at the end of the PCH agreement, any damage over and above general wear and tear will be chargeable.