Car leasing guide: tips and advice

Want low monthly payments for a brand new car and are sure you don't want to own it? Leasing could be for you. Keep reading for more info

BuyaCar team
Jul 31, 2020

Car leasing is like long-term car rental, consisting of an initial payment and a series of fixed monthly payments over a set period of time. You don't formally pay interest - as you're effectively renting the car rather than financing it - and when the contract comes to an end, you hand the car back with nothing more to pay. Provided, that is, there's no damage beyond fair wear and tear and you've stuck to the pre-agreed mileage limit.

Leasing is one of the simplest ways of driving a new car and can be one of the most cost-effective, enabling you to get a new car every few years. As long as you don’t want to own your vehicle at the end of the agreement, this can be an affordable way to put a string of new cars on your driveway. Just remember that you have to hand the car back at the end of the contract; there's no chance to buy it.

It's worth comparing with PCP finance, however, as this also offers low monthly payments, plus the option to buy the car at the end of the contract. You also have greater consumer protection with PCP, which could come in handy if, for instance, your financial situation changes and you need to hand the car back before the end of the contract.

Leasing, which is also known as Personal Contract Hire (PCH), is ideal if you like the idea changing your car regularly and don't want the hassle of owning it when the contract is over. As lease costs are fixed, you know exactly what you have to pay at the start and even if the value of the car unexpectedly fell, you wouldn't have to pay any extra, as the leasing company takes the risk. Watch the video below for an overview of how leasing works and keep reading to see how to make leasing work for you. 

Car leasing guide

Pros

Budgeting Fixed monthly payments. Servicing can be included
Low payments Less than Hire Purchase and often a bit lower than PCP finance
Reduced risk If the car loses value unexpectedly, that's not your problem
New cars Often the quickest way to get the latest cars

Cons

Long-term ownership You have to return the car 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 a series of fixed monthly payments until the end of the agreement, at which point you return the car. That's it. There's no choice to buy it and little chance to hand it back early.

It is predominantly available for new cars, but for a similar format you can take out PCP finance on many used cars, too, which offers low monthly payments, like a lease, as well as the ability to hand the car back at the end of the agreement with nothing more to pay.

With PCP, though, you also get the choice to buy the car at the end of the contract for a pre-agreed amount. For the lowest monthly payments you're normally best off going for PCP finance on a used car rather than a lease on a more expensive new car.

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 by looking at like-for-like deals with the same initial payment, mileage allowance and contract length. If you're ready to take the plunge, check out all the best deals available through BuyaCar now by searching all lease deals.

The monthly payments are linked to the how much value the car is expected to lose over the course of the contract. This means that desirable cars that lose value slowly typically offer low monthly payments compared with their cash price, while those with particularly low cash prices also have low monthly payments, as they have less value to lose.

Working out your lease payments

Once you’ve found a car that you want to lease, you’ll need to find the right contract terms. Most leases are flexible enough to be adapted to suit your circumstances, so you’ll be usually able to alter the following areas, which in turn have an impact on what you pay every month:

  • Annual mileage limit Choose a limit that covers the distance you expect to travel each year. If the limit is too high, then you’ll end up paying more unnecessarily. Too low, and you’ll face a penalty at the end of the contract if you've exceeded the limit.
  • Initial rental payment This is a one-off cost at the beginning of your lease that’s presented as a multiple of your monthly payments. You can typically choose the equivalent of three, six or nine monthly payments. The more you pay at the start, the lower your monthly payments will be.
  • Length of agreement Some leases run for two years, but it’s more common to have a three- or four-year lease. Typically, the longer the contract, the lower the monthly payments, though there are exceptions to this. At the end of the contract, you hand the car back. Be aware that you are likely to face penalty charges if the car is damaged beyond fair wear and tear or has exceeded the pre-agreed mileage limit when you hand it back.

Getting the cheapest car lease deal

Find a car that holds its value well

Lease costs are mainly influenced by the difference in the price that the leasing company pays for a new car, and the amount that they can sell it for at the end of the agreement. 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. The simplest way to gauge this is to search for cars with certain contract terms (a set contract length, mileage allowance and initial payment), to see which have the lowest monthly payments.

Look for offers

If you're not picky about the exact car you want, then you'll usually be able to find some excellent value lease deals, which are often for cars that are ready for immediate delivery. 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 have a limited monthly budget, but some money currently in the bank, then increasing your initial rental payment will reduce the size of the subsequent monthly payments. 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

Avoid making your mileage limit higher than it needs to be, as this will increase the monthly 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 that is typically more than you would have paid to go for the respective higher mileage limit.

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

That's because a cheap-to-buy car could prove so basic it's undesirable as a used car. That could mean that opting for a car with a higher initial price could cost you less overall, as you get so much more back when you come to sell.

Leasing takes this into account, so don't simply look at cars with the lowest cash prices, as these may not be the cheapest or best value ones to lease. Some desirable high-specification models can have lower monthly payments 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. However, fair credit car finance and bad credit finance are available if you consider different types of finance. Read more about how to secure bad credit car finance here.

Personal Contract Purchase (PCP) finance, meanwhile, offers many of the benefits of leasing but is available to a wider range of people. 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 at the end of the agreement or, depending on the car's value, trading it in for another car on a new finance deal.

The flexibility that you have with PCP can mean that the monthly payments can be a little higher than with some lease deals. However, as PCP is available on cars up to five years old and leasing is normally only available on new cars, go for a used model and the cheapest PCP deal can be much cheaper than the cheapest lease option.

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 mean that the monthly payment alone doesn’t tell the full story.

Instead, you should get like-for-like quotes or look at the total cost of the lease agreement (provided the leases you're comparing run for the same length of time), 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 at the end of a lease is to hand the car back. There’s no guaranteed way of extending the lease or buying the car, although the leasing company may consider a request to do so if you've fallen in love with it and want to keep it.

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 with a car lease. In some cases, you may have to pay all of the remaining money due - even if you hand the car back.

That’s because car lease agreements don’t benefit from the Voluntary Termination option that allows customers with PCP and Hire Purchase contracts to hand the car back once they have paid half of the overall amount due. If you expect that you might want to hand the car back early, therefore, it's worth considering PCP to benefit from low monthly payments plus more options for returning the car early without huge charges.

Buying a car at the end of the lease

Officially, there is no option to buy the car at the end of the deal. However, if you are attached to the car, then your leasing company may agree to sell the car to you or extend the lease. Remember that there is no requirement for them to do so.

Even if the car is set to be sold once you've handed it back and the lease company won't sell it to you directly, you can always ask where and how it's being sold and buy it this way, though that is additional hassle.

How to avoid car lease penalty fees

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

This sets out what damage is classed as normal wear and tear - and therefore deemed acceptable - and what is classed as more serious and therefore is likely to require you to pay a penalty fee.

If you have a history of damaging cars and would like the option to buy the car should this scenario arise, consider going for PCP finance, as it's down to you whether you buy the car when the contract ends. Buy the car and the finance company won't be concerned what state it's in - make the optional final payment and you own it.

 

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