Guide to Car Leasing

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:

1. The contract length (usually 2 - 5 years)
2. The annual mileage allowance
3. 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 “+”).