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Leasing a car is a great option for many drivers, but is it right for you? How does it all work? Is it better than PCP? Our guide will explain everything you need to know as well as all the pros and cons. To find out more and see it’s the best option for you, read our full guide below. We hope it explains what you need to know about the process.
How does leasing a car work?
We know it may sound a little confusing, but it’s actually quite straight forward. Leasing a car is like renting one. The difference is that you will have the vehicle long term (between 2 to 4 years).
You will pay a fixed amount on a monthly basis for the term of your contract. Once your agreements ends you give your car back to the company. It’s worth pointing out that the car you get will be new (not used).
One of the main differences between leasing and PCP (and HP) is that you don’t pay a deposit as such. Instead of this you will pay an initial rental payment. This is usually between 6 to 9 monthly rentals in advance.
Paying more upfront will mean your monthly payments are lower during your contract term.
How do they structure contracts?
Nearly all car lease plans will work the same way. As well as the initial payment you will an agreed fixed amount for the whole term of your contract. When you see the term “initial payment” it means how many monthly upfront payments you will make at the start. The most common are 3, 6 and 9 payments in advance. The more you pay upfront, the less you will pay on a monthly basis.
When you compare car leasing prices online you will see terms like 9 + 47. This is simply saying there will be 9 monthly payments in advance for a period of 4 years.
Top tip: If you are looking to lease for less, look for one with a 4 year term. These are usually much cheaper than 2 or 3 year contracts. Another tip is to pay more upfront so you pay less during your agreement.
Will I ever own the car?
Quite simply, no. At no time during or after your contract term will you own the car. Even though you have full use of the car, the leasing companies are always the real owner. As soon as your term ends, you have to give the car back. This is just like when you rent a flat. You will have full use during your contract, but it will always be the property of the land lord.
It’s perfect if you want to drive a brand new car every couple of years. If you want a car for the long term, or to own the car, consider other options instead.
There’s a number of benefits to leasing vs buying a car. Firstly, you will not have to endure the aggro of selling your car. Secondly, the won’t have to worry about your car losing value. Thirdly, you won’t be making a bad investment. Buying a car is one of the worst big purchases you can make. Unlike a mortgage where you end up with equity, you will be guaranteed to lose money buying a new car. The minute you drive the car off the forecourt it will lose value. It will then lose more value year by year and the more miles you drive. This is called residual value.
Top tip: When you lease a new vehicle it will get the full benefits of the manufacturer warranty. This means most issues will be fixed for you at no cost. Although check with the company first to see what exactly is covered.
How will my car be delivered?
When your car is ready to be delivered, the company will contact you to arrange this. The vast majority of companies will offer free nationwide / UK delivery. This means the car will come to you and not the other way round.
Does my car come with warranty?
We touched over this earlier. If the car you’re getting is new it will indeed come with a warranty. Much the same as if you bought a new car. This means certain parts will be fixed if needed. Simply take the car in to your local dealer without paying anything.
One of the benefits to a shorter contract (2 or 3 years) is that you’ll have warranty for the whole term. A real plus point. We always suggest getting these sort of facts from the company before signing a contract.
Top tip: Parts like tyres and brakes do not come under the warranty.
Can I get insurance included?
You may be able to get a plan which offers insurance. Find out more here.
Will my car get free maintenance?
No, you will not get free maintenance for your car during your contract term. You will have your warranty which will cover you in certain situations, but it will still require servicing.
Most brokers will offer you the option of buying a maintenance package. Although it will cost more, it will give you piece of mind and cover any services.
Top tip: It is your responsibility to service the car and do so within the manufacturers guidelines.
Will the car come with free road tax?
Most contracts will factor the price of your road tax into the monthly payment. Some companies will offer free road tax as an incentive.
Am I liable for any penalty charges?
There are certain situations where you may be liable and have to pay a penalty charge. If you go over your yearly mileage allowance, you will have to pay extra. If you decide you want to get out of your contract early, you will pay a penalty.
In addition, if you return your car with excessive wear and tear, you will pay extra. We recommend being clear right from the start about these sorts of things. Ask the broker upfront. It may end up saving you money in the long term.
PCP vs leasing, what’s the difference?
They are actually quite similar to each other, but have one big difference. Both options will involve paying an upfront sum of money as well as monthly payments. However, the big difference is that PCP will give you two options when your term ends.
You can either make a final payment to own the car or simply give it back. You will not get the option to buy the car when you lease. It’s quite a big choice, leasing or buying. Both have their own pros and cons. If you simply want to drive a new car every couple of years, go for leasing. If you think you may want to own the car, go with PCP.
What’s the difference business and personal car leasing?
The difference between personal and business leasing is that you can claim back VAT for a business contract. Your business will obviously need to be VAT registered. In addition, the cars main use would need to be for work. Personal car leasing is for private individuals.
Top tip: Prices on broker websites may look cheap, but make sure you are looking the personal deals. Sites usually default to business prices without VAT included. This makes them look like they cost less! So make sure the price you see includes VAT.
Let’s compare leasing vs PCP vs HP
Please take a look at the table below. This is a handy way to quickly see facts about the various methods. Below we compare the 3 options. Read through the guide below to find out in more detail.
|Consider the Following||Lease||HP||PCP|
|Do I need to pay a deposit?||Yes||Yes||Yes|
|Will payments be fixed monthly?||Yes||Yes||Yes|
|Is there a yearly mileage limit?||Yes||No||Yes|
|Are there fines for excessive wear & tear?||Yes||No||Yes|
|Should I care about depreciation?||No||Yes||No|
|Will I own the car outright at the end?||No||Yes||No|
|Is there a balloon payment at the end?||No||No||Yes|
|Will I have to pay an early redemption fee?||Yes||Yes||Yes|
|Do I have to go through a credit check?||Yes||Yes||Yes|