Guide to Car Leasing – part 4 of 7
Car leasing (also known as 'contract car hire') is an increasingly popular method of car finance in the UK. There are a rapidly expanding number of car leasing companies offering both business and personal car leasing. So how does it work and who is it right for?
Personal car leasing
The concept behind car leasing is straightforward - you pay a monthly sum over a two-four year period but you never actually own the car. At the end of the term you simply hand the car back in or alternatively take out a new lease, potentially on a new vehicle.
Car leasing allows you to change your vehicle regularly and consequently avoid the costs of running an older car. This is where cheap car leasing becomes a cost effective option - it's great for short-term results and will work out cheaper than a personal car loan. In the medium term the two methods work out roughly the same, while in the longer term it will prove cheaper to buy. For example, if a car is worth £20,000 when new and £12,000 when two years old you will pay the £8,000 difference plus interest charges and other depreciation fees. You then hand the car back. By contrast, with a loan you will pay out the full value of the car eventually (in this case £20,000) plus the interest. So car leasing is a cheaper option over a shorter period.
What will you have to pay?
When searching for the best car leasing deal it is important to make sure you take account of all factors on any car leasing quote you receive:
- Initial payment - The initial sum will usually be equal to three monthly payments. This is the only money you are required to pay 'up front'.
- Monthly repayments - These will be cheaper than a loan purchase because they are based on different values.
- Average mileage - You will have to inform the car leasing company of your expected annual mileage. The higher the mileage, the higher the payment. However, if you underestimate the agreed mileage you are likely to face penalty charges.
- Tax - Does your package include tax? Some companies will include it for the term of your agreement but others might not.
- Servicing - Some car leasing companies include this in their price - it might be preferable for you to pay for an annual service independently.
- Additional fees - Penalty charges are usually implemented for going over your mileage limit or ending the lease earlier than agreed.
Part five examines the advantages and disadvantages of car leasing.
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