Personal car leasing

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Find out what personal car leasing is and how it could be the right option for you when looking for a car upgrade

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What is personal car leasing?

Personal car leasing (also known as ‘Personal Contract Hire’) is essentially the long-term rental of a brand-new car. You make an initial payment that goes against the total cost of the lease agreement, followed by fixed monthly installments for the remainder of your contract term. A lease deal often lasts between 2-4 years and prices displayed are always inclusive of VAT.

Once you have paid all the monthly rentals for the car, you can hand the keys back to the leasing company and walk away, or take out another lease deal on a newer model. There’ll be nothing more to pay so long as you’ve kept the car in good condition and stuck to your pre-agreed annual mileage.

How does personal car leasing work?

Personal car leasing works by basing the cost of a vehicle on its depreciation (loss of value) over the course of your agreement. Factors which affect the cost of a car lease deal include:

  • The initial payment: A flexible upfront payment which can be one, three, six or nine months’ worth of the car’s lease cost. It works against the total cost of leasing a car, so a higher initial payment will make the remaining monthly payments cheaper
  • Contract length: A longer lease term (for example, four years) spreads the cost of the monthly payments for the car, making them cheaper than shorter terms
  • Annual mileage: you’ll be asked to decide how many miles per year you wish to drive your lease car, which will often be between 8,000 and 30,000 miles. A higher annual mileage will result in more expensive monthly payments.

Insurance 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 guarantee protection for its asset.

Maintenance packages are available for most lease cars to cover the cost of fixing any wear and tear issues a lease car may have. This is an optional extra which you can choose to pay separately, or alongside the cost of leasing the car.

However, you should remember that all the cars are brand-new and come with the full manufacturer’s warranty. Therefore you’ll be automatically protected in case of an unexpected mechanical or electrical problem.

What happens at the end of the lease?

At the end of a lease deal the car leasing company will send a professional inspector to look over the vehicle before you hand over the keys. This is to check that the car’s condition reflects fair use over the time that you’ve had it. Some wear and tear will be expected, but any obvious damage to the car will need to be fixed to avoid facing additional charges.

As part of the inspection, the car’s odometer will be checked to confirm that you’ve stuck to the agreed annual mileage in your contract. Leasing companies tend to have an excess mileage charge of around 15p per mile, but others may charge more.

Remember to check what the car’s total mileage is since you had it in the weeks leading up to the collection date. This way you can discuss the option to make a mileage amendment to your contract with the leasing company if you’ve gone over what was originally agreed or you think you’re about to.

After your car has been inspected you can decide there and then whether you want to lease another vehicle with the same company or shop around elsewhere for a new one.

Is leasing the right option for me?

Personal car leasing can be a great way of getting a new car you love, without having to pay a big sum upfront. The monthly payments for the vehicle are fixed too, so a lease agreement offers financial predictability which you can easily budget for.

Here’s a few examples of when leasing could be right for you:

  • You earn a regular income: It’s important that you can afford to make the monthly payments for a lease car on time to avoid being charged for late/missed payments
  • You have a good to excellent credit score: You might get better prices on a new car if your credit score shows a positive financial history. Funders will also use your credit score as part of the credit check to approve the finance and ensure you can make the monthly payments on time
  • You like to update your car every few years: One of the perks of leasing a car is that you can hand it back after a few years and get the latest model on a new agreement. You won’t have to worry about having to sell the car when you no longer want it, or about losing money because of depreciation

Leasing isn’t for everyone, though. Before applying for a lease deal, consider the following:

  • Bad credit: You’ll find it very difficult to be approved for a lease deal if you have bad credit. Although some companies claim to specialise in bad credit leasing, you’ll often be faced with a high upfront initial payment and more expensive monthly payments. Remember to check what your credit rating is before applying for the finance, otherwise you could end up paying more than necessary for your next car
  • Driving style: The mileage limitations involved placed on lease cars could mean that leasing isn’t suited to you, especially if you do a lot of miles. Although high mileage lease agreements exist, they tend not to be more than 30,000 miles per year. If you drive more than this each year, you’ll probably be better off looking at other options which don’t restrict your driving
  • Ownership: If you know that you definitely want to own a car, or at least want the option to, leasing probably won’t be the right option for you. At the end of a lease deal you won’t be given the option to own the car, though you could take out a separate agreement on the same model

Will you need to pay extra for servicing?

Most lease deals come with the option of a maintenance package which will cover the cost of servicing the car within the monthly lease payments. It will cost slightly more per month than a deal which doesn’t include the package, but you’ll have the peace of mind in knowing you can take it for a regular service at any point, at no extra cost.

If you choose not to add a maintenance package to your lease agreement, you’ll have to pay extra for any service work done to the car.

You won’t need to take a lease car for an MOT unless your contract length is more than three years. However, it’s recommended that you stick to the manufacturer’s service schedule and have the car tested at regular intervals (this is often every year/12,000 miles). By doing this you can guarantee that the car is kept in good condition and avoid being charged excess damage fees at the end of your agreement.

Where can I get a lease deal?

You can get car lease deals from either a broker or a manufacturer’s dealership.

Brokers have access to multiple funders and aren’t affiliated with a particular brand of car. For this reason, they can usually offer a wide variety of vehicles with special offer discounts throughout the year for some of the cheapest monthly payments.

On the other hand, dealerships offer lease deals on cars which belong to their own brand. Despite the choice of vehicles being more limited than those a broker offers, a dealership can often get exclusive access to manufacturer discounts on selected models. This is because they have their own finance arms funding each lease agreement.

If you have a particular brand in mind for your next car, you’ll probably get a better price on a lease deal by going directly to an associated dealership. They don’t tend to charge admin fees for processing the paperwork like some brokers do either, which can mean you save some money upfront.

Nevertheless, if you’re not sure what car you want, it’s best to use a car leasing comparison website to compare prices from multiple brokers. You’ll have a better chance of finding the cheapest offer on a variety of models because of brokers’ access to multiple funders.

What happens if I miss a payment?

You should try your best to avoid missing any of the monthly payments for a lease car. If you think you won’t be able to make a payment, contact the leasing company straight away to notify them. They’re often accustomed to dealing with changes in circumstances, so they may be open to negotiating temporary amendments in the contract term until you can afford to pay in full again.

Missing a payment will not only result in a charge from the funder, but you also risk negatively affecting your credit score. Consecutive missed payments for a lease car could lead to the leasing company repossessing the vehicle.

This is a worst-case scenario and would go on your financial record, meaning you’d struggle to get finance on a car in the future.

What happens if I stop paying?

If you stop paying for a lease car because you can’t afford the payments any longer, the finance provider will have to repossess the car. You’ll then have to pay for the repossession process, plus any outstanding lease payments for the vehicle before it’s collected. After this, your contract will be terminated.

Unfortunately, this will be recorded on your credit file, but if you voluntarily opt to have the car repossessed then you shouldn’t face any problems trying to get a lease car in the future.

An order for a forced repossession will usually happen after three unpaid monthly payments. You should always contact the leasing company if you don’t think you can make the monthly payments anymore, otherwise this will reflect badly on your credit history and you may struggle to get a lease deal in the future. It’s also likely that you’ll face fines for missed payments if you simply stop paying for the car.

What effect will getting a lease deal have on my credit score?

Car leasing is seen by credit reporting agencies (CRAs) as a form of loan, whereby the ‘loan amount’ is the total cost of the lease agreement.

Making your monthly lease payments on time is similar to borrowing money from a bank and repaying it on time over a few years. This can boost your credit score and prove to lenders that you’re reliable when it comes to loan repayments.

On the flip side, not making your monthly payments on time or stopping paying completely will harm your credit score. Should you need a loan in the future, a lender may charge you a higher rate of interest or reject your application completely if they see that you defaulted on car lease payments in the past.

What costs might I face at the end of the deal?

You won’t have to worry about end-of-lease charges if you keep the car in good condition, stick to your agreed annual mileage and make the monthly payments on time.

Here are all possible costs you may face at the end of a lease deal:

  • Damage costs: Damage is considered anything which is beyond what the leasing company constitutes ‘fair wear and tear’. You should receive a document with the BVRLA’s (British Vehicle Rental and Leasing Association) guidelines highlighting what condition your car should be in when it’s collected
  • Excess mileage costs: Each leasing company will charge its own fee for any miles on the car which go beyond what was originally agreed in your contract. As a rough guide, this will tend to be anywhere from 15p to 30p, but some may charge more. Although it doesn’t sound a lot, this can soon lead to a hefty bill at the end if you don’t pay attention to how many miles you’re driving
  • Missed/late payment costs: Missed/late payment costs for a lease car will usually be added onto a bill at the end of your lease deal, but some leasing companies may decide to charge you sooner. There is no fixed rate charge for missed/late payments and this will depend on the leasing company and the terms of your contract. However, they can be very expensive, especially if it happens on numerous occasions

What if I want to keep the car?

Unfortunately you won’t be able to keep the car at the end of a lease deal because the finance provider owns it. But you will have the option to take out another lease agreement on the same model after your contract is up. It will more than likely be the latest version of the car too, meaning you could get better equipment and have an even better driving experience than you did with the previous car.

Alternatively, you may be able to get a formal contract extension for at least 6-12 months to have the car for longer. This is subject to approval from the funder and you’ll need to be eligible (i.e. the accounts must have no arrears and you can’t request that maintenance is added or removed from the agreement). You’ll also need to sign a modifying agreement which contains a new annual mileage and contract end date.

Remember that a contract extension could mean that your car is out of warranty. You’ll also have to pay for the car to have an MOT if the extension goes beyond the vehicle’s third birthday (unless you have a maintenance package, in which case this cost is covered).

How can I pay as little as possible?

There are several ways you can get the cheapest lease deal possible, including:

  1. Use a car leasing comparison site: A quick and easy way to find better deals on a car you want is to compare offers from multiple brokers on a car leasing comparison website. Prices will be clearly listed to show you the whole lease cost from start to finish, so you’ll be able to easily pick out the deal which offers the best value for your money
  2. Choose a longer contract length: If you want to reduce the cost of your monthly lease payments, consider spreading them over a longer contract length. For example, a three or four-year deal can be considerably cheaper than a two-year deal, which could help you manage the cost of the car. Remember that you will pay more overall when you choose a longer lease term
  3. Drive less miles: The lower your annual mileage on a lease deal, the cheaper your monthly payments are likely to be. But you’ll need to make sure that you stick to the miles you agree or risk paying more in excess mileage charges
  4. Look after the car: Taking your lease car for a service based on the manufacturer’s recommendations and driving sensibly can help ensure you aren’t hit with excess damage charges at the end of your contract
  5. Stick to your agreed annual mileage: You can calculate your yearly mileage easily by multiplying the typical miles you drive each week by 52. Remember to add an extra 5% of the total in there to account for any potential emergency journeys. Lease deals round mileage to the nearest thousand (for example, 8,000, 10,000, or 12,000) so be sure to pick the right option based on your calculations to avoid being charged excess mileage fees

How much will my monthly payments be?

The price of your monthly lease payments will depend on the car you choose and the terms of your contract.

Here are some examples of average lease prices* for the most popular car models.

Car make and model

Monthly lease price

Ford Fiesta

£179.36

Mercedes A-Class

£253.54

Volkswagen Golf

£270.80

Kia Sportage

£284.83

BMW 3 Series

£333.09

*Monthly prices based on a 36-month lease term, three months’ initial payment and 8,000 miles per year. Data provided by Moneyshake, accurate as of July 2020.

What’s no deposit car leasing?

A no deposit car lease deal is the same as any other standard lease agreement, but without the large upfront cost. Instead of choosing an initial payment that is worth one, three, six or nine months’ worth of the monthly lease cost, the first payment for the car is the first lease installment. This will generally be taken after 30 days of you receiving the car.

Not many finance providers offer no deposit car leasing, and the monthly payments for the car will be more expensive to compensate. You’ll also need to have an excellent credit score in order to qualify for a no deposit car lease deal, as these types of agreement aren’t available for people who are deemed as a risk for lending.

Remember to check that you can afford the monthly price of any no deposit car lease deal before signing a contract.

Compare car leasing deals

Finding a good price on a car lease is quick and easy when you compare deals with MoneySuperMarket and our partner provider, Moneyshake. Just give us a couple of details about yourself and which car you’d like to lease and you’ll be able to compare deals from a range of providers.

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