Car leasing

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What are the benefits of car leasing?

With new cars losing their value the minute they are driven off the forecourt, it’s no surprise that vehicle leasing is one of the most popular ways to finance a car.

Unlike buying a vehicle outright, leasing is essentially a long-term rental agreement on a new car.

It’s a little like renting a house or a flat. You pay a deposit, agree to pay a monthly fee over a set period, and at the end of that time you hand the keys back to the leasing company.

What’s great about leasing is that it offers you the freedom to drive a new car every few years, without the hassle of having to sell the car once your contract ends.

If you like, at the end of your lease agreement you can simply walk away without committing to another deal.

Another benefit is that if something suddenly went wrong with the car, it can be dropped off at the garage for no extra cost.

Leased cars benefit from having the manufacturer’s warranty from the get-go, so you won’t have to worry about those surprise repair costs on your new car.

What do I need to be aware of when leasing a car?

If you decide to lease a car, it’s important to be aware you won’t ever own the car, so you will need to take out fully comprehensive car insurance before driving away.

Third party cover would only pay for damage to other people’s property in the event of a claim, so you would be left to foot the bill for any repairs needed to the car at the end of the agreement.

You should also check with the leasing company what condition the car needs to be returned in.

Most providers and leasing companies use the British Vehicle Rental and Leasing Association (BVRLA) ‘Fair Wear and Tear’ guide as a standard to follow.

Being aware of this guideline will ensure you don’t get charged extra at the end of your lease agreement.

Don’t worry about a few marks here and there, as they won’t expect the car to be in showroom condition when you hand it back. But they will want it to be in a saleable condition. 

It is also worth checking what penalties there are for missing monthly payments, or what it costs to end the lease agreement early.

Finally, it’s important to be aware that all agreements come with a limited mileage and if you exceed this limit, it’s likely you will incur extra charges at a rate per mile specified by the leasing company.

What are maintenance packages?

A maintenance package is an optional extra that can be added when you sign up to a car leasing agreement.

Although it’s not a necessity, it can be useful if you want the reassurance that any unexpected repair costs will be covered.

That said, most cars you lease are no more than 12 months old, so your lease term will rarely exceed the average manufacturer’s three-year warranty.

This means you’ll automatically be covered for all mechanical and breakdown repairs, as long as they haven’t occurred through driver error.

However, a warranty won’t cover general wear and tear on replaceable items in the car, such as tyres and batteries, and this is why you might want to consider a maintenance package.

Generally, a maintenance package will include the following:

  • Free servicing
  • Replacement tyres and batteries
  • Most repair costs

Each leasing company will offer different maintenance packages on their cars, for which you can pay extra as part of your agreed monthly fee or pay separately.

But it’s worth thinking about whether you think it’s worth it before paying for a maintenance package.

What is car leasing?

Car leasing is like a long-term rental. You sign a contract to pay a monthly fee, which gets you full use of a vehicle for a set period of time. At the end of the contract, you hand the keys back to the leasing firm – and that’s it.

It’s a neat way of getting to drive the latest model every few years without breaking the bank.

Are lease cars brand new?

All lease cars sourced from providers are brand new.

You won’t need to worry about your new car losing its value over the course of your agreement, either. Your fixed monthly payments will cover any depreciation.

Are lease cars in stock right now?

If you want to get behind the wheel of your new car quickly, don’t worry. You will be shown what’s in stock right now, and what needs to go to factory order.

Bear in mind that a factory order will take longer, but this is because your order is being made to your exact specifications.

Are there any admin fees involved?

Some providers will charge admin fees on their lease deals, others won’t.

You might have to pay a small admin fee on certain deals, which is there to help the provider process it. But if you don’t want to pay it, you’ll be able to choose from a diverse range to get the right deal for you.

Is car tax included?

Our partner’s lease deals include car tax for the length of your contract, regardless of how long that is.

Is there a mileage limit?

You can specify how many miles you want to drive each year with any lease deal. This will renew after each year of your agreement.

The minimum and maximum limit will vary depending on the car you choose. But generally, this will range from 8,000 to 25,000 miles.

To avoid extra charges at the end of your contract, remember to be honest when specifying how many miles you’ll do each year.

What happens at the end of a lease agreement?

Once you’ve met all your monthly payments, you can hand the keys back to the provider and walk away. Or you can pick your next brand-new car and agree another lease deal.

Don’t worry about getting the car back to the provider. Just remember to put enough fuel into it, and they will come and take it off your hands at a time that suits you.

An inspection of the car will be part of this pickup, so be sure to check that there’s no damage to it that could be considered beyond fair wear and tear. Don’t worry, the car doesn’t need to be in showroom condition!

What credit score do I need to lease a car?

All lease deals are subject to a credit check from the finance provider. The information required isn’t intrusive – they just need a few details about your employment history, income and expenditure, which tells the provider whether leasing is right for you.

You should check your credit score with MoneySuperMarket's free Credit Monitor tool before you enquire about a lease car.

Things to look out for

New cars tend to have a warranty that lasts for the first two or three years, so it may not be cost effective to double up on maintenance costs.

That said, manufacturer warranties don't cover everything. Wear and tear on things like tyres and batteries are unlikely to be included so it is important to look at just what the maintenance payments do and don't cover.

You should also check what the penalties are for missing a scheduled payment, or for ending the lease before the contract term expires.

If you do opt for maintenance payments, find out if you will be supplied with a courtesy car should the one you're leasing be off the road for an extended period of time.

Make sure you agree to a realistic annual mileage limit. It may be tempting to under-estimate how many miles you'll do in a year to get cheaper monthly payments, but that saving could be outweighed by excess mileage charges.

Finally, as a leased car doesn't belong to you, you'll need fully comprehensive car insurance. Third party cover would only pay for damage to other people's property in the event of a claim, so you'd be left to foot the bill for repairs as handing back a damaged car to the dealer at the end of the lease can result in charges.

You shouldn't struggle to get insurance for a leased vehicle although premiums tend to be slightly higher than those where the driver is the legal owner of the car. The difference isn't huge though, about £10-15 a year, so if you think leasing is more appropriate for you it's probably worth paying.

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To help you compare car leasing agreements more easily, MoneySuperMarket has teamed up with Limited which offers an external car leasing comparison service so you can find the right deal for you. Limited is registered in England and Wales (company no. 06367911). Limited is authorised and regulated by the Financial Conduct Authority for credit broking activities with the firm reference number 522581.

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