What is car leasing?

Car leasing is a means to get behind the wheel of a brand new car in return for an initial payment and a series of monthly instalments – usually over a period of between two and four years.

Unlike PCP agreements, there is no option to buy the car outright at the end of your leasing agreement – instead, you simply return it to the leasing company. Keep reading for a full breakdown of how leasing compares to other means of parking your dream car on your driveway.

Leasing vs finance
Things to consider Leasing PCP HP Bank loan
Deposit required
Fixed monthly payments
Mileage caps
Fines for excess wear and tear
Depreciation risk
Own the car outright at end of term
Balloon payment at the end
Early redemption charges
Secured against an asset

What is car leasing?

Leasing a new car is similar to renting it for an extended period, only rather than pay for it in one lump sum up front the cost is split into a series of monthly payments. Once your leasing term is up, you’ll return the car to the leasing company – just like returning a hire car to the hire firm. Leasing agreements are usually only available on new cars and typically last from between two and four years. Unlike some PCP and HP agreements, you won’t have to put down a deposit, but you do have to pay an initial amount that’s equivalent to a few month’s payments at once.

Car leasing on carwow

Just as we have made buying a new car hassle-free, carwow offers you the option to lease a car, too. It couldn’t be easier. carwow helps you to find the best car leasing deals from approved suppliers. You can compare local and national deals and tailor the deal to suit you best, by altering the length of lease, the amount of initial payment and your annual mileage – and all our lease cars come with free delivery. Take a look at the Car Leasing section to choose your next lease car and to see the latest offers. Or keep reading to understand more about leasing a car and how compares with different methods of buying a car.  

How are car leasing deals structured?

Most car leasing deals consist of an ‘initial payment’ and a set series of ‘monthly payments’. The initial payment refers to how much you’ll pay up front and is usually three, six or nine times the monthly payment amount. Car leasing deals are usually referred to by the size of the initial payment and the number of subsequent monthly payments. For example, a 6 + 35 agreement requires an initial payment amount equal to six monthly payments, after which you’ll pay a set monthly payment amount every month for the next 35 months. The total length of a 6 + 35 deal is 36 months (three years).

Do I own a leased car?

At no point during your leasing agreement will you own your car – it remains the property of the leasing company, even after your final payment. When your car leasing agreement has finished, you simply return it to the leasing company.

In this respect, it’s similar to renting a house – you have sole use of it, but it’s still owned by the landlord at all times. As a result, leasing your next car might not be suitable if you wish to keep it for a very long time. But, leasing is an option worth considering if you want to change your car every few years.

Not owning your leased car means you won’t have to worry about the hassle of selling it on, or how much it may have depreciated (lost value) in the time you’ve been driving it. Because leasing deals tend to be offered on new cars only, most leased vehicles will be within the manufacturer’s warranty period, meaning you won’t have to pay to fix any unforeseen issues. Similarly, should the car break down, it’ll be the responsibility of the leasing company to resolve the issue.

How is a leased car delivered?

Most leasing companies in the UK will arrange to deliver your new car free of charge. As a result, you won’t have to traipse over to the leasing company’s premises to pick up your new car – unless you want to.

Do leased cars come with a warranty?

If you choose to lease a new car, it’ll be covered by the same manufacturer warranty as if you’d bought the car outright. As a result, if any non-consumable parts (excluding brakes or tyres, for example) fail you’ll be able to get them fixed at a local dealership without paying a penny. Most new car warranties last at least three years, so, if your lease agreement is three years or shorter, your car will be covered for the entirety of your lease. This will depend on the length of the warranty offered by the manufacturer of each vehicle, so will be worth checking before you sign a lease agreement.

Do leased cars come with maintenance packages?

A manufacturer warranty will only cover your car for any unexpected car failures, but you will still need to make sure it’s serviced in line with the manufacturer’s recommendations. Many lease agreements will come with the option for you to buy optional maintenance packages to cover the cost of any servicing your car needs during your lease period.

Do I have to pay tax and get an MOT for a leased car?

Many car lease agreements come with the cost of road tax factored into your monthly payments. New cars don’t need to have an MOT test until they’re three years old, either, so you won’t have to worry about having your car tested unless your lease agreement is longer than three years.

How do I insure a leased car?

You will have to insure a leased car in the same way you’d insure any car – it’s unlikely the leasing company will offer to factor the cost of insurance coverage into your monthly payments.

What happens when my car lease ends?

When your leasing agreement ends, you’ll have to return the car to the leasing company. Usually, they can arrange to have it collected from your address at a time and date that suits you. It’s worth remembering that most leasing agreements come with a set of requirements that the car must meet when it’s returned. If you drive it for more miles than outlined in your initial lease agreement – or return it with excessive wear and tear – you may be liable to pay a penalty charge.

What’s the difference between leasing and PCP?

Leasing a car looks similar to signing a PCP deal because both require you to pay an initial amount followed by a set number of monthly payments. The big difference however is that when a PCP agreement ends, you’ll be given the option to hand the car back, or buy it outright for a final payment – often called a ‘balloon’ payment.

When a leasing agreement ends, you won’t be given the chance to buy the car outright. If you haven’t decided whether you want to own the car at the end of your agreement, a PCP deal may be more suitable than leasing your next car. If, however, you’d rather return it and get behind the wheel of a brand new model, then leasing may be the way to go.

Are there any downsides to leasing a car?

Car leases sometimes come with less flexibility than other finance agreements. For example, if you’ve signed a PCP agreement but your circumstances change before you’ve made your final payment, you can voluntarily terminate the agreement – providing you’ve paid at least 50% of the total finance amount. This may come with some fees, but it will cost you less in the long-term than continuing to pay for the remainder of a lease agreement. If you’re worried about high mileage and excess wear and tear charges, you may prefer to buy your next car outright rather than lease it, too.

How does personal car leasing compare to business car leasing?

You can lease a car as a private individual, or through a business. In both instances, you’ll pay an initial payment and a series of monthly amounts, but business users may be able to claim back VAT on their lease agreement – providing the car is only used for business purposes.

More information

Does leasing a car affect your credit score?

What are the extra costs on a car lease?

Should you lease a car through a dealer or a broker?