Guide to Car Leasing
What is car leasing?
We like to make car leasing easy. That's why, if you're considering leasing a new car and would like more information about how it works, we're here to help. Here's what you need to know...
Leasing a car can be thought of as like a long-term rental contract. You have use of a brand-new car over a fixed period of time for a set fee. It is often much cheaper than purchasing a car and avoids the ownership pitfall of depreciation.
The amount you pay for a lease varies depending on the make, model and derivative of your vehicle, as well as the structure of your contract.
When your lease contract ends, the car will be returned to your finance provider. They will usually contact you to arrange collection of the vehicle and then carry out their final checks.
Did you know that leasing is also known as Personal Contract Hire, or PCH for short?
Why is car leasing cheaper than PCP and HP?
The British public has become more financially savvy and personal car leasing has become more popular as a result. It is seen as a more cost-effective way of driving a new car rather than buying one outright.
In most cases, the monthly cost tends to be lower for a lease because your monthly payments are actually covering the deprecation of the vehicle rather than paying for equity in it. You are also better protected in the case of a major issue with the vehicle as it is the leasing company’s legal responsibility to resolve it, not yours.
The leasing company that owns your car may buy tens-of-thousands of new cars directly from manufacturers every year. Manufacturers give lease companies large discounts which means that their lease prices can be reduced as there is less depreciation risk to cover. You benefit from their buying-power which would be very difficult to replicate in negotiating a PCP or HP deal with a local franchise dealer.
Lease contracts explained
A contract hire agreement usually consists of an initial payment and fixed monthly payments. It structured in a similar way for private and business leases. The structure of a contract is based on:
- The contract length (usually 2 - 5 years)
- The annual mileage allowance
- The amount of your initial payment
Generally speaking, increasing your initial payment will have the effect of decreasing your monthly payments. Initial payments are often referred to as 1, 3, 6, 9 or 12-upfront. This is because the initial payment figure is usually a multiple of the monthly rental.
e.g. if a 2-year lease contract has a £600.00 initial payment and a £200.00 monthly payment it would be referred to as 3-upfront because 3 x £200.00 = £600.00.
The length of your contract will normally be stated in months rather than years on your lease paperwork. A 2-year contract would be 24-months and so on. You will make a payment on every month of your agreement so a 24-month contract would mean 24 payments. Continuing with the example used above, the payment structure would be referred to as a 3 + 23 because:
The initial payment of £600.00 (3 x £200.00 represented by the number 3 before the “+”) is followed by 23 monthly payments of £200.00 (represented by the number 23 after the “+”).
Am I eligible to lease a car?
Most people meet the following necessary criteria to apply for a lease:
1. Hold a Full UK Driving License
2. Be aged 18-years old or over
3. Registered as living in the UK
4. Be able to provide 3-years address history
5. Be able to provide 3-years employment/education history
6. Have a regular and stable income
7. Be able to afford the required payments throughout the contract period
You will have to undergo and pass a personal credit check carried out by the proposed finance provider to ensure that you meet their credit risk, affordability and anti-fraud criteria. If you meet the standards mentioned above and have a high credit score you stand a good chance of being accepted for a lease. If you have a poor credit score or do not meet the above criteria then leasing may not be the right option for you.