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Car Leasing Explained

Everything you need to know about personal contract hire

Victoria Russell
Written by  Victoria Russell
5 min read
Updated: 23 Feb 2024

If you’re looking to lease a car, then PCH could be your best option. Our guide explains how it works, the pros and cons and the alternatives

What is car leasing?

Car leasing, or personal contract hire (PCH), is akin to a long-term rental. You get to drive a new car without the hefty price tag of ownership. The process is straightforward: you pay an initial deposit followed by fixed monthly payments over the course of the lease, usually spanning two to four years. At the end of the agreement, you simply return the car to the leasing company, avoiding the hassle of resale and the worry of depreciation.

The initial deposit often covers one, three, six, or nine months' worth of the car's lease cost. The higher the initial payment, the lower the remaining monthly payments will be.

Personal lease

How personal contract hire works

When you lease a car, you're essentially paying for its depreciation during your term of use, along with some additional costs to cover the leasing company's overheads. The initial payment and subsequent monthly fees are influenced by various factors, including the length of the contract and your annual mileage, with specific mileage ranges provided (8,000 to 30,000 miles). It's important to note that insurance for the car will not usually be included with a car lease deal, unless it’s advertised as being a ‘Total Care’ agreement. The leasing funder which owns the car will require you to get fully comprehensive cover to ensure the vehicle is fully protected. Optional maintenance packages are available to cover the cost of fixing wear and tear issues, and all leased cars are brand-new and come with the full manufacturer’s warranty.

Required details for leasing

Before the keys are in your hand, the leasing company will perform a credit check. You'll need to provide detailed personal information such as photo ID, proof of address, bank details, employment details, and information about your monthly income to ensure you can keep up with the lease payments.

Car Leasing vs. PCP

Understanding the difference between car leasing and personal contract purchase (PCP) is crucial. PCP may give you the option to purchase the vehicle at the end of your term with a final balloon payment. In contrast, car leasing is a pure rental agreement with no ownership option at the end of the lease.

Regular repayments in car leasing

After your initial payment, monthly repayments are made throughout the lease term, which typically lasts between two to four years. These payments are fixed, allowing for easy budgeting and financial planning. A longer lease term can make monthly payments cheaper but may result in paying more overall.

End of the PCH contract

Upon completing your lease term and final payment, you can return the car and potentially enter a new PCH agreement for a different vehicle, keeping your driving experience fresh and updated.

Pros and cons of leasing a car

As with other forms of car finance, such as hire purchase (HP) and personal contract purchase (PCP), there are pros and cons to personal contract hire. Here's a quick rundown to consider:

Pros:

  • Lower upfront costs compared to buying

  • Potentially more affordable than HP or PCP

  • Fixed monthly costs for easy budgeting

  • Flexible terms to suit your needs

  • No obligations at lease end, like selling the vehicle

Cons:

  • You never own the car

  • Can have expensive monthly payments

  • Possible charges for excess mileage and damage

  • Penalties for missed payments or early termination

Choosing the best car leasing deal

When selecting a car leasing deal, consider the vehicle's price and what you can afford. Think about the deposit amount, lease length, and terms such as mileage limits and maintenance packages. With leasing, you’re able to drive cars from a number of popular car manufacturers. Through our partner Moneyshake, you can compare car leasing deals from well-known brands such as Audi, BMW, Mercedes Benz, and many more.

Alternatives to personal contract hire

If you're not sure about leasing, there are other options to consider:

  • Car loan: Spread the cost of buying a car with an unsecured loan, owning the car outright once it's paid off.

  • Personal contract purchase (PCP): Pay an upfront deposit and monthly payments with an option to buy the car at the end of the term.

  • Hire purchase (HP): Pay for the car in instalments and own it after the last payment, without a balloon payment.

  • Credit cards: Purchase a car or part of it on a credit card, ideally with an interest-free period or by transferring the balance to an interest-free card.

Other Useful Guides

Looking to find out more about car finance? We have a range of detailed guides to help with your decision...

Bad credit car leasing

How to find the best car leasing deals

Buying versus leasing

Compare car leasing with MoneySuperMarket

Ready to find your perfect lease? Compare car leasing deals with MoneySuperMarket, in partnership with Moneyshake. Enter your personal details and car preferences to uncover deals tailored to you. And if you're considering a car loan, MoneySuperMarket has you covered there too.

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