Increasingly car buyers are choosing to lease their new cars rather than buy them outright. While less established than widely utilised PCP or HP deals, leasing is steadily gathering pace. To lease a car, you pay a deposit, followed by a series of monthly payments usually between two to four years. At the end of the deal, you hand the car back to the leasing company and arrange your next agreement.
Our handy table below compares car leasing to taking out PCP or HP finance, or getting a bank loan. Keep reading for more in depth information.
|Things to consider||Leasing||PCP||HP||Bank loan|
|Fixed monthly payments|
|Fines for excess wear and tear|
|Own the car outright at end of term|
|Balloon payment at the end|
|Early redemption charges|
|Secured against an asset|
What is leasing?
Leasing a car is similar to taking out a long-term rental. To lease a car, you pay an initial payment – usually the equivalent to a few months’ payments in one go – then a series of monthly payments until the contract runs out. Leasing is usually only offered on brand new cars on contracts typically lasting between two and four years.
You can think of it as similar to choosing to rent your house rather than buying it. You live there and can treat it as your own house but the landlord remains the legal owner and you continue paying them until you want to move out.
How are lease deals structured?
When you’re browsing lease deals, you’ll see an ‘initial payment’ then a ‘monthly payment’. The ‘initial payment’ refers to how much you have to pay up front and is shown as 3, 6, or 9 times the monthly payment. This ‘initial payment’ means your first month’s payment is higher, and the following months are simply the ‘monthly payment’.
For example, a 9 + 35 deal requires an initial payment of equivalent to nine months payments to secure the deal and cover the first month of ownership. You’ll then pay a further 35 monthly repayments. This means the total length of a 9+35 deal is 36 months.
When you lease a car, you won’t be its legal owner – it’ll be owned by the leasing company that supplies the lease deal. You’ll get to treat it like your own car but, at the end of the agreement, you’ll have to give it back to the leasing company.
It won’t suit you if you want to keep your car for a long time, but it can be a good choice if you want to have a new car every few years. Think of it as similar to your mobile phone contract – every few years you can start a new contract and get the latest model.
Not owning your car also has some distinct benefits – mainly surrounding what happens should it go wrong. First – the car you lease will never be more than a few years old so the likelihood of it going wrong is much lower than an older car that you’ve owned for a long time. Second – the length of your lease is very likely to fall within the car’s warranty period so you won’t have to pay anything even if something does go wrong. What’s more, should the car fail, it’s the leasing company’s responsibility to resolve the issue.
Another plus point to lease deals is that the majority come with free UK delivery arranged by the leasing company. This means you won’t have to trek over to a dealer to pick up your new pride and joy if you don’t want to.
Your lease car is covered by exactly the same manufacturer-backed warranty as if you’d gone into the dealership and bought it outright. This means that if any non-consumable parts go wrong within this period, you can get them replaced at your local dealership for free.
Many car warranties are at least three years long and most lease agreements also last for three years so chances are you’ll have warranty cover for the entire length of your lease agreement. You should check this, though, because manufacturer’s warranty periods can vary.
Your warranty will probably cover you should anything go wrong while you have the car but it’ll be your responsibility to have it serviced in line with the manufacturer service intervals.
Often when you arrange your lease agreement, you can purchase maintenance packages to go with it to cover your servicing costs for the length of your ownership. Generally these will add a few pounds to your monthly repayments but could save you money in the long run.
Tax and MOT
The majority of lease agreements also include your road tax as part of the cost. This means you won’t have to faff around when it comes time to renew your car’s tax – the leasing company takes care of that for you.
What’s more, new cars don’t need an MOT certificate until they reach three years old. That means that, unless your agreement is longer than three years, you won’t have to worry about getting it MOT’d either.
You still have to arrange your own insurance cover for your lease car. If you’re unlucky enough to have an accident while driving your lease car, simply contact your insurance provider as normal and they’ll handle the rest.
What happens at the end of my lease?
At the end of your lease deal, you’ll have to hand the car back to the leasing company. The good news is that you typically won’t have to take it anywhere – your leasing company will usually make contact with you to arrange a time to come and pick it up.
Your leasing company might offer to arrange another agreement to start once your current one finishes. Remember to revisit carwow to make sure you’re getting the best deal! If you decide to do that, the leasing company can typically arrange to drop your new car off when they come to collect your old one.
Be aware that you might have to pay extra charges if you’ve gone over the mileage you agreed in your lease contract. You will also have to pay for any damage that exceeds fair wear and tear so it pays to take good care of your lease car.
Leasing vs PCP
Leasing is similar to PCP because both require an initial deposits followed by monthly payments. Leasing differs because there is no option to buy the car at the end of the agreement, where PCP deals let you choose between paying a balloon payment or handing the car back.
If you’re sure you won’t want to own the car at the end of the agreement, it can sometimes be cheaper to get a lease deal than a PCP for the same car. This isn’t always the case, however, because manufacturers might incentivise a PCP purchase more than a lease deal, making that the cheaper option.
Leasing won’t suit everybody. One of the main advantages of buying your car outright is that it’s yours to do with whatever you want. You could drive it for another 20 years or you could sell it and get some of your money back. This isn’t an option at the end of your lease deal so you must arrange another one with more monthly payments if you still want to have a car.
Another potential downside is that lease deals leave you with a little less flexibility than you might get with a PCP finance package. If your circumstances change during your lease agreement, you’re committed to the remaining payments, or at best a penalty from the leasing company. On the other hand, most PCP agreements let you cancel them after a certain amount of time provided you’ve paid 50% of the finance balance – this is called ‘Voluntary Termination’, but it can sometimes come with some fees.
Personal car leasing vs business car leasing
You can also lease a car through your business rather than as a private customer. This is fundamentally a very similar process with an initial rental then a series of monthly payments in exchange for a new car. The two methods do differ slightly, however, because businesses can claim back the VAT on their lease provided the car isn’t used for personal trips or commuting. Read our full business car leasing guide to get all the facts.
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