So, what's this whole leasing malarkey, how does it compare with PCP/buying, and what kind of price are you looking at to lease a brand new car?
As your friendly neighbourhood leasing experts, we're here to answer exactly that question, as well as tell you how car leasing works, the things you'll have to pay for (and not pay for), and whether leasing is all it's made out to be (HINT: it is!).
Let's get to it.
How Does Leasing Work?
Car leasing is a type of car finance that basically works like a long-term vehicle rental, so just like renting a house or an apartment where you'd pay a monthly rental.
In other words, you sign up to pay monthly fees to get to drive a brand new car for a set period of time – normally 2 to 4 years (but it can be more or less). At the end of the lease contract, you simply hand the car back to the leasing provider, and assuming you've stuck to the terms of the contract, there'll be nothing more to pay.
How Does Leasing Differ from PCP?
The monthly payments for car leasing deals usually work out cheaper than the monthly payments for PCP deals. Unlike with PCP, you won't be paying interest on a lease deal, as there's no expectation that you might be buying the vehicle. So that's one plus point in the leasing vs PCP debate.
And as opposed to PCP, you don't have the option of a final balloon payment and owning the car at the end of the agreement. Which means less hassle-causing decision-making.
Another difference is that you can PCP both new and used cars, whereas leasing is normally only available with new cars (but more used lease cars are coming onto the market, however).
Is Leasing Cheaper Than Buying?
In principle, car leasing is a lot like leasing a house.
But of course, cars aren't like houses . . .
Unless it's a classic or a vintage model, they almost always lose value, so you could say that cars are never a good investment.
But at least if you buy and own a car outright, then go on to sell it, you'll be able to get some of that money back, right?
Well, maybe with a used car, as it's probably already gone through its most rapid depreciation phase and won't stand to lose much more value.
However, if it's a brand new car that you want, then you're definitely better off leasing it. Hands down.
Rates differ slightly depending on brand and mode, but generally speaking, brand new cars lose between 15-35% of their value in the first year and up to 50% or more over three years. That's a lot of money gone down the drain!
But you don't have to worry about the car's depreciation with leasing. Also, you won't have to deal with the hassle of selling the car on or finding a buyer. You just hand it back to the leasing provider – plain and simple.
What Determines the Cost of a Lease Car?
Your car leasing cost depends on several factors:
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Car make and model (prestige cars are obviously going to be more expensive)
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Contract length (usually between 2 and 4 years)
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Annual mileage allowance (the lower the mileage, the less you pay)
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Initial payment (between 1 and 12 months' instalments)
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Optional extras e.g. paint, wheel spec and trim level
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Processing fee (differs by company)
Initial Rentals and Monthly Payments
At the start of a car lease agreement, you’ll have to put down an initial payment or 'deposit'.
But the good news is that this isn't really a deposit, as it's non-refundable and goes towards what you'll pay for the lease car. So if you pay a bigger deposit, that'll mean lower monthly lease payments, but you'll still be paying the same amount either way.
It's essentially your first month's payment and is non-refundable.
Terms are very flexible, so it's up to you how much you want to pay towards the initial payment. The usual rate is around 3 months, but a lot of leasing brokers will sometimes let you pay up to 12 months' worth of monthly payments towards the initial rental, which is great if you've got piles of cash sitting around doing nothing!
It's also possible to go for no deposit deals, so you're essentially paying for zero deposit, but it's really just 1 month. This will result in larger car monthly lease payments, but it can be a great option if you're badly in need of a car but are seriously strapped for cash in the short term.
Whatever you choose regarding the initial rental, rest assured that you'll still be paying the same amount of money over the whole course of the lease agreement.
Excess Mileage Charges
You know that annual mileage limit which you agree on at the start of the car leasing contract?
Well, that's in place so that the leasing company has a good idea of how much your car will depreciate and what it will be worth at the end of the term. It's calculated on a pence per mile basis, and may differ depending on which broker and car model you choose, so always worth researching before you sign up.
So what happens if you go over it and exceed the mileage?
Unfortunately . . . fees.
Yep! But what's great about car leasing though is that you can normally apply to have your mileage limit adjusted if you find that you're covering more miles than you expected. The leasing company will usually be happy to accommodate this, but we can't guarantee in every case.
What Is Included in My Monthly Payments? What Fees Do You Avoid With LeaseLoco?
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Mileage
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Road tax
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Breakdown cover
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VAT
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Free UK delivery (excluding Northern Ireland)
What Are the Cheapest Cars to Lease?
If you're on the lookout for the most affordable car leasing deal, then why not check out the 6 cheapest car leasing deals right here at LeaseLoco at the time of writing:
Citroën AMI – from £167.65 per month
Fiat 500 – from £169.09 per month
KIA Ceed – from £178.88 per month
SEAT Ibiza – from £182.31 per month
Vauxhall Corsa – £185.99 per month
Suzuki S-Cross – from £193.57 per month
Is that good value or what?!
Or if you're looking for something a little more ambitious or different, our unique LocoScore makes it super easy for you to compare car leasing deals.
(prices are subject to change)
Costs At the End of the Lease: Fair Wear and Tear
Whenever you hold onto a car for a long period of time, it's bound to pick up some minor condition issues along the way such as worn carpets and small dents – what's known as fair wear and tear.
Leasing companies know and understand this, which is why each lease car is covered by a fair wear and tear policy, so some minor damage is acceptable (as per the BVRLA guidelines) when the time comes for you to part ways with your lease car and hand it back.
But just be warned that any excessive damage which isn't covered by the guidelines will incur fees, and the cost will be invoiced to you at the end of the contract.
What About Maintenance?
Sorry, not included!
This is in addition to your car leasing manufacturer's warranty and usually covers the additional cost of things going wrong such as batteries, bulbs, puncture repairs, exhausts, belts, alternators, wiper blades and starter motors. It also covers any labour costs involved. It's by no means necessary, but it does mean you can be sure that you won’t have any unexpected bills for things that need to be replaced before you hand your car back.
Government legislation says that after a car turns 3 years old, it must undergo an MOT test each year. Great thing is that if you take out a maintenance package, you don't have to worry about MOTs, routine or servicing for the duration of your car leasing contract. A maintenance package may increase your monthly payments overall, but it does ensure that you won't face any unexpected (and expensive) repairs later on.
Road Tax
Yep, road tax is fully included whenever you lease a car!
And better yet, it'll last for the whole duration of the car lease so there's no need to worry about renewing, so you could save hundreds of pounds each year. It's especially beneficial if you're leasing a car that's valued at over £40,000, as you'll avoid the premium tax surcharge of £355 per year.
You'll receive written confirmation that the vehicle has been taxed.
Is Car Leasing Available With Insurance?
Unfortunately not, no.
That's something you'll have to arrange yourself, as you still need to take out an insurance policy after you've signed the lease.
In the UK, the legal requirement is that you must have a minimum of third party car insurance – in other words, insurance which covers damage and injury to another person and their car, but we'd still recommend fully comprehensive cover. That covers damage to you and the lease car as well.
It should be no surprise that the leasing company would recommend fully comprehensive cover too. They're the registered keeper of the lease car, so they'll want to make sure you've got as much coverage as possible, and the leasing company will usually advise you to take out that kind of policy.
GAP Insurance
Obviously, GAP (Guaranteed Asset Protection) insurance isn't covered either.
And what is GAP insurance, exactly?
Suppose you take out a lease car and expect to pay £10,000 over the course of the agreement.
Then suppose your lease car gets stolen or written off (chances are it'll never happen!) and is worth £6,000 at the time of the incident.
In ordinary circumstances, your insurance company will pay £6,000 (the car's residual value), but you'd be expected to pay the remaining lease finance payments for £4,000.
That's where GAP insurance comes in . . . it'll pay off the remaining amount, meaning you don't have to dip into your pockets for an expensive bill.
It'll usually only set you back around £10 per month, but make sure to shop around for the cheapest provider.
Can I Lease a Car With Bad Credit?
Yes, it is still possible to take out a car lease with bad credit.
However, the cost will be greater than if you have a good or excellent credit score.
That's because you're deemed as more of a 'risk' to the finance lender and may not get access to the cheapest lease deals, so always try to improve your credit score if you can.
This can be done through actions like the following:
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Getting on the electoral roll
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Paying all your bills on time
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Taking out a mobile phone contract
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Avoid regular credit applications
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Look for mistakes in your credit report (e.g. address, typos)
And even if your credit score is so bad that you can't get accepted for a lease deal by yourself in the normal way, then there are other things you can try like putting down a larger deposit, getting on a joint agreement or asking someone to act as your lease car guarantor.
Manufacturer’s Warranty
Yet another goodie that comes fully included with your lease deal.
Depending on the length of your contract and your agreed mileage limit, it should be sufficient enough to cover any necessary repairs during the course of the lease.
That being said, it is worth bearing in mind that there are usually several limitations to the standard warranty, as it only applies to defaults and not damage caused by you.
For example, Audi's standard manufacturer warranty covers you for a minimum of 2 years unlimited mileage, with a 3rd year including up to 60,000 miles.
Thing is . . . if you intend to rack up more miles than this during a 3-year period or you're on a 4-year lease contract, then this will leave you without sufficient cover for the last part of your term. In that case then, it might be worthwhile to look into getting an extended warranty.
Breakdown Cover
It’s 10pm on a cold winter's night.
One of your tyres has popped, you've pulled over onto the hard shoulder and now you're stuck in the middle of nowhere.
Thing is . . . you've phoned the 24-hour emergency call-out team to come and sort you out, but you're worried about racking up a hefty bill.
Well, not to worry, as breakdown cover is included as part of your leasing deal!
And even in the super-rare instance that it's not included, you can often get it at a very competitive price by arranging with your leasing broker.
Summary
Hopefully you now have a better idea of the costs involved in leasing a car, how it compares with buying/PCP, and what things are and are not included.
As always, happy leasing!
FAQs
How much does it cost to lease a car UK?
A car leasing cost can vary, from monthly payments as little as £100 to as large as £1000 per month. It all depends on the car and which leasing options you choose.
How much of salary should go to car lease?
The '20/4/10' rule is a good way to go. This is where you pay for 20% of the car's cost on the initial 'deposit', lease it for 4 years or less and spend 10% of your monthly earnings on the monthly payments.
What are 3 disadvantages of leasing a car?
There aren't many disadvantages, but if we had to pick 3, we'd say: (1) never getting to own the car; (2) having to stick to a mileage limit; (3) potential fair and wear fees.