Car leasing guide

Low monthly payments for a brand new car: leasing tips and advice in our car leasing guide

BuyaCar team
May 30, 2018

Car leasing is a long-term car rental agreement with a series of fixed monthly payments for a set period of time. When it comes to an end, you hand the car back with nothing more to pay.

It’s one of the simplest and cheapest ways of driving a new car, and enables you to have a new one every few years. As long as you don’t want to own your vehicle at the end of the agreement, you could reduce your costs or get a better car than you were expecting.

Leasing, which is also known as Personal Contract Hire (PCH), is ideal if you’re looking for a diesel car but don’t want the risk of it plummeting in value if diesel taxes rise. Because lease costs are fixed, you won’t have to pay any more. Taking out a short-term lease will also enable you to change your car for a new one after as little as twelve months.

 

Car leasing: good for

✔  Budgeting Fixed monthly payment. Servicing can be included
✔  Low repayments Usually less than HP or PCP finance
✔  Reducing risk An unexpected loss of value isn't your problem
✔  New cars Often the quickest way to get the latest cars

Car leasing: not so good for

Long-term ownership You have to return it at the end
Unpredictable trips Penalties apply for exceeding mileage limit
Used cars Most leasing is for new cars only
Ending agreement early You may have to continue payments

  

How does car leasing work?

Leasing is straightforward: you rent a car for a set amount of time, making one initial payment, and then fixed monthly instalments until the end of the agreement, at which point you return your car. Scroll down for more details on finding the best lease deal; what you need to consider during your car lease; and what happens at the end.

It is predominantly available for new cars, but you can take out PCP finance on many used cars, which offers low monthly payments and ability to hand the car back at the end of the agreement with nothing more to pay (see Leasing a car with poor credit).

 

More information on car leasing

Choosing your car lease deal
Best cars to lease
Working out your lease payments
Getting the cheapest car lease deal: leasing tips
Lease car delivery

At the end
Ending your car lease agreement
Avoid car lease penalty fees

    

Best cars to lease

Choosing a car to lease is as simple as the agreement itself. Virtually every new car is available on a lease agreement. It's easy to compare the offers but don't just look at the monthly payment: ask for the total amount payable over the course of the agreement to see exactly how much you'll be paying.  

We highlight some of the lowest-rate offers available on our best lease deals page, and you can also search all lease deals for every vehicle that's available through BuyaCar.

The monthly prices are linked to the cost of owning a car - in particular the value that it is expected to lose over the course of your agreement. You're more likely to have lower payments by choosing a popular car without too many optional extras, than if you opt for a car that's going to be difficult for your finance company to sell on once you hand it back, and with thousands of pounds-worth of optional extras that second-hand buyers won't pay extra for.

 

Working out your lease payments

Once you’ve found a car that you want to lease, you’ll need to find the right agreement. Most are flexible to suit your circumstances, so you’ll be usually able to alter the following areas

  • Annual mileage limit It’s worth choosing a limit that matches the distance you expect to cover each year. If the limit is too high, then you’ll end up unnecessarily paying more. Too low, and you’ll face a penalty at the end.
  • Initial rental payment This is a one-off fee at the beginning of your lease that’s based on your monthly payments. You can typically choose the equivalent of three, six or nine instalments. The more you pay at the start, the lower your monthly fee will be.
  • Length of agreement Some leases run for just 12 months, but it’s more common to have a three- or four-year lease, which usually has lower monthly payments. At the end of the agreement, you hand your car back. You are likely to face penalty charges if the car is damaged or has exceeded the mileage limit.

    

Getting the cheapest car lease deal: leasing tips

Find a car that holds its value well
The price of a lease is mainly determined by the expected value of the car at the end of the term: at the very least, the leasing company will have to earn the difference between the cost of the car when new and its second-hand price.

That’s why it’s worth choosing a car that won’t plummet in value. These are generally cars that are highly-rated and perform well. Check our buying guides for more information on the cars that you’re looking at.

Look for offers
Leasing offers might not be particularly obvious but they are there, with particularly low rates on certain cars - particularly pre-registered models. Keep an eye on our best lease deals page for discounts as they crop up, or monitor the price of a particular model by searching all lease deals.

Increase your initial payment
If you’ve got a limited monthly budget, but some money currently in the bank, then increasing your initial rental payment will reduce the size of the subsequent instalments. The total amount that you pay will be fairly similar, but you may find the lower monthly payments easier to manage.

Choose a lower mileage limit
Try and avoid making your mileage limit higher than it needs to be, as this will increase the cost of leasing the car and you’ll be paying for mileage that you never use. That said, it is worth giving yourself a little leeway, as going over the limit will result in a penalty fee.

Getting the best car on a lease agreement
When you’re buying in cash, getting the best deal can can seem simple - just buy the cheapest car available

But that’s actually too simplistic because when you take into account all of the running costs (including the price you’ll get when you come to sell it), the cheapest car may actually cost you more than a mid-range model.

Leasing takes more of the running costs into account because you simply hand the car back at the end, so some high-specification models can be cheaper than less-well-equipped cars. It’s a similar story when it comes to engine choice.

Leasing a car with poor credit
Car leasing is generally only open to you if you have a good credit profile because there are no interest rates that could increase to take into account lower credit scores.

There is another way to effectively lease a car though, by taking out Personal Contract Purchase (PCP) finance. It’s like a lease deal in that you pay a deposit, make a set of fixed monthly payments over a set period and then have the option to hand the car back.

With PCP, you also have the option of buying the car outright or trading it for a different model. In this case, if the car is worth more than the amount it would cost you to buy it, then the difference can be put towards another PCP on your next car.

The flexibility that you have with PCP usually means that the monthly payments are a little higher than with a lease agreement.

How to compare car lease deals
It can be difficult to compare like-with-like when you’re leasing a car: the range of initial rental payments, mileage limits and lease lengths man that the monthly payment alone doesn’t tell the full story.

Instead, you should look at the total cost of the lease agreement, which takes into account all of the payments that you make. This figure should be provided with every car lease quote.

   

Ending your car lease agreement

The only option is to hand the car back at the end of the agreement. There’s no guaranteed way of extending the lease or buying the car, although the leasing company may consider a request to do so.

Ending a car lease agreement early

Although it’s usually possible to hand your car back early, you will likely face large termination fees, which often amount to half of the value of the remaining payments. In some cases, you may have to pay all of the remaining money due.

That’s because car lease agreements don’t benefit from the voluntary termination option that allows customers taking out PCP and HP finance to hand the car back with nothing more to pay once they have made half of their payments.

Buying a car at the end of the lease

Officially, no. However, if you are attached to the car, then your leasing company may agree to sell the car to you. There’s no requirement for them to do so.

   

Avoid car lease penalty fees

Damage to cars that are returned after lease and finance agreements is usually assessed using standards from the British Vehicle Rental and Leasing Association.

This sets out whether damage is classed as normal wear and tear - and acceptable - or if it’s more serious, in which case you’ll probably have to pay a penalty fee.

   

Read more about:

Latest advice

  1. BuyaCar.co.uk reviews

  2. Cars with 0% finance

  3. Lease vs finance

What our customers say