Cheap car leasing

Cheap car leasing
Find the cheapest long-term car rentals

Opting for a brand-new car isn’t typically a frugal choice, but if you have your heart set on one and are open to leasing it for a defined term (without the option to eventually own it), then car leasing – also referred to as Personal Contract Hire or PCH – may be a viable option to explore. Below, we’ve simplified the fundamentals so you can determine if car leasing aligns with your needs.

What is car leasing?

Leasing a car is no different from leasing – or renting – anything else. Just like renting a house or apartment where you pay a deposit upfront and utilize it for an agreed period, car leasing operates similarly. You commit to a set monthly payment after an initial larger payment acting as a deposit.

Clarity is key in these agreements. For instance, a 24-month contract termed as 6+23 signifies the initial payment being six times the standard amount (£900 upfront), followed by 23 monthly payments of £150.

Typically spanning two to three years, most car leases involve new vehicles, although terms can range from one to four years, though instances beyond this are uncommon.

Ownership of the vehicle isn’t transferred to you nor is there an option to purchase it at lease end. Instead, the car is returned to the finance company. Similar to renting property, it undergoes inspection, with potential charges for damages beyond normal wear and tear. Exceeding the agreed annual mileage also incurs additional fees.

Car leasing is categorized into personal and business leases, with this guide primarily addressing personal leasing, applicable to business arrangements as well.

What’s the difference between car leasing and PCP?

The primary distinction lies in how Personal Contract Purchase (PCP) car finance grants the opportunity to acquire ownership of the vehicle at the contract’s conclusion, whereas car leasing does not offer this ownership possibility.

In both PCP and car leasing arrangements, you commit to a deposit and regular monthly payments for the vehicle lease. PCP, however, includes the flexibility of making a larger ‘balloon’ payment at the contract’s end to outright purchase the vehicle. Alternatively, you can opt to return the vehicle to the lender if you decide against purchasing it.

For further insights into PCP deals, explore the section on alternative car finance options.

How does leasing a car work?

Typically, you’d lease a vehicle from a finance company or sometimes directly from a manufacturer. In the past, leasing arrangements were primarily conducted through car dealerships, but nowadays, many leasing providers operate via online platforms.

The terms they propose and the amount you’ll pay depend on your choice of make and model, anticipated mileage, and duration of the lease.

Throughout the lease period, the vehicle remains the property of the finance company. Since a new car experiences rapid depreciation, especially with time and higher-than-average mileage, its value significantly diminishes by the end of the lease term.

Upon your return of the vehicle, most leasing companies proceed to sell it. Their pricing strategy revolves around charging you an amount that covers the anticipated depreciation loss (the original purchase price minus the projected resale value). They also factor in a margin for profit.

Due to their bulk purchasing power, leasing companies often acquire new vehicles at a lower cost compared to individuals, thereby minimizing depreciation costs. Consequently, leasing arrangements can present competitive options for certain models, providing an economical route to driving a new vehicle.

Who can lease a car?

To lease a car in the UK, certain criteria must be met:

• You must be at least 18 years old. Despite the legal driving age being 17, leasing a car requires adulthood due to the contractual nature of the agreement. Under-18s are prohibited from entering into such legally binding contracts unless they are considered ‘necessary’.
• Possess a valid driving licence. Ensure your licence remains valid by referring to our guide on renewing driving licences.
• Maintain a ‘fair’ to ‘good’ credit score. The interpretation of what constitutes a ‘fair’ to ‘good’ credit score varies among credit reference agencies, each having its own scoring system. Find out more about this and check your score for free using MSE’s credit report guide.
• Provide personal details. This includes your full name, address, employment history, and financial particulars such as bank details.
• Submit documentation. Alongside personal details, you’ll need to present identification, proof of address, and a signed finance agreement to the car finance company or manufacturer.
• Obtain car insurance. This is mandatory once the lease agreement is finalized. Further details on car insurance are available below.

What are the different types of car leases?

As mentioned earlier, car leasing encompasses two primary categories: personal car leasing and business car leasing. Here’s a detailed examination of their distinctions:

Personal car leasing

• For an individual. Geared towards individuals, it involves an agreement tailored for personal use rather than corporate purposes.
• Payment responsibility. The lease agreement is solely under the individual’s name, making them accountable for the monthly payments.
• Tax implications. Typically, personal lease payments do not qualify for tax deductions.
• Low mileage limits. Due to lower expected usage, individuals generally face stricter mileage limits compared to businesses.

Business car leasing

• For a business. Designed for companies and their staff needing vehicles for business-related tasks.
• Payment responsibility. Lease payments are typically the responsibility of the business, with the contract held in the company’s name.
• Tax implications. Businesses often benefit from tax deductions on lease payments since vehicles are considered a business expense. Moreover, they usually receive more generous mileage allowances.
• Limited personal use. Effective VAT reclamation on business cars necessitates minimal personal usage.

These distinctions underscore how personal and business car leasing cater to distinct needs, addressing individual convenience versus corporate requirements while also navigating varying tax implications and usage parameters.

How much does it cost to lease a car?

The cost of leasing a car can vary significantly, typically ranging between £100 and £1,000 per month. Several factors influence this expense:

• Choice of vehicle: Opting for a luxury brand like Audi or BMW naturally commands higher monthly payments compared to choosing a more economical option such as Fiat or Vauxhall.
• Initial payment: The amount paid upfront significantly impacts monthly costs. A larger initial payment reduces the overall lease amount, resulting in lower monthly installments.
• Duration of the lease: Longer lease terms spread out the total cost over more months, reducing monthly payments but committing you to the contract for an extended period.
• Agreed mileage: Agreeing to higher annual mileage increases monthly payments due to accelerated depreciation. This means the car’s resale value to the leasing company or manufacturer diminishes.

Beyond the monthly lease payments, additional expenses include car insurance and potential charges for damage or exceeding mileage limits at the lease’s end.

Leasing vs buying a car: Which is cheaper?

Cars typically depreciate over time, making them generally seen as poor investments. However, purchasing a car allows you to recoup some of your investment when you decide to sell it. Leasing, on the other hand, guarantees you won’t have any residual value at the end of the lease term.

The fundamental question revolves around whether the total cost of leasing over the lease period is more or less than the depreciation and ownership costs of buying a car and selling it over the same timeframe (purchase price plus potential interest expenses, minus expected resale value).

If leasing costs less, it could be a more economical choice than buying because you avoid tying up a large sum of money in the vehicle and simply make manageable monthly payments. Conversely, if buying and selling costs less, purchasing the car outright would be the better financial decision.

What are the benefits of leasing a car?

Deciding whether leasing a car suits your needs hinges on your individual circumstances. We delve into various alternatives below, but here are the key advantages of leasing a car:

• Reduced monthly expenses: Lease payments generally undercut other financing methods.
• Predictable payments: Fixed monthly payments simplify budgeting.
• Lower initial outlay: Leasing typically demands a smaller upfront payment than purchasing.
• Lower ongoing costs: Many leased vehicles stay under warranty, resulting in lower repair and maintenance expenses compared to outright ownership. Lease companies often cover road tax, and if the car is under three years old, you can skip MOT expenses, reducing additional costs.
• Access to newer models: Leasing offers the flexibility to enjoy the latest vehicle models with advanced features every few years, without a long-term commitment.

However, leasing has its downsides. These include the inability to own the vehicle outright, charges for exceeding mileage limits and wear and tear, and potential higher long-term costs compared to purchasing a car outright.

What are the alternatives to leasing a car?

This guide primarily emphasizes leasing, but it’s essential to explore other forms of car finance before proceeding. Generally, there are six primary methods of financing a vehicle. The following table provides a quick overview of their key distinctions, followed by a detailed examination of non-leasing options, including links to our comprehensive car finance guides where applicable.

Sadly, there’s no ‘one-size-fits-all’ answer to which wins (as much hangs on whether you want to own the car and other factors). However, we’ve included more information on each alternative to car leasing below, to help you work out which is right for you.

• Cash Savings – The Most Affordable Option for Most Cars

If you want to fully own your car from the start, cash savings is the best choice since you avoid paying interest or accruing debt. However, if you’re buying a brand new car—which typically depreciates by around 40% in the first year—and plan to change it within a few years, consider leasing or a Personal Contract Purchase (PCP) deal. These options can sometimes make overall ownership more cost-effective.

• 0% Spending Credit Card – No Interest if You Have a Sufficient Credit Limit (and the Dealer Accepts Cards)

For those who qualify, a 0% spending credit card can be an economical borrowing option, depending on the car’s price. You’ll own the car outright and benefit from Section 75 protection. However, not all dealers accept credit cards, so verify this beforehand.

Credit limits are usually unknown until after application, and you must plan to repay the debt before the 0% interest period expires to avoid high-interest charges. Cards typically offer up to 25 months at 0% interest. For more details, see our 0% spending cards guide, and check the Credit Cards and Loans section on our website.

• Personal Loan – Generally the Cheapest Option if You Need to Borrow and Want Full Ownership

Though not interest-free, a personal loan may allow you to borrow more money over a longer period than a credit card. Repayments are structured to clear the debt within one to five years.

With a personal loan, you’ll own the car outright. For the best options, refer to our Cheap Loans guide and use our personal loan calculator to determine potential borrowing amounts and interest costs.

• Hire Purchase (HP) – A Viable Option if You Can’t Secure a Cheaper Loan, Though the Lender Owns the Car Until Fully Paid

Similar to a loan, an HP agreement means you’re borrowing to pay off the car’s full cost, but you won’t own the car until the final payment is made. The finance company owns the car as it serves as collateral for the loan, and can repossess it if you default on payments.

HP deals may be easier to obtain than traditional loans, but usually require a deposit (often 10% or more of the car’s price). Consider how you’ll fund this deposit.

Dealers might offer larger discounts or deposit contributions on new cars to promote finance deals. For used cars, you might be able to negotiate some price reduction. Always calculate the total repayment amount, including interest, to understand the true cost. See our Cheap Hire Purchase guide for further assistance.

• Car Leasing/Personal Contract Hire (PCH) – Low Monthly Payments, but No Ownership Option

Leasing allows you to drive a new car for a monthly fee, essentially a long-term rental without ownership or purchase options. You pay an initial deposit followed by monthly payments over one to four years.

Similar to PCP, you select a mileage allowance (e.g., 8,000 miles annually) and are responsible for the car’s maintenance. At the end of the lease, you return the car, but may incur charges for excess mileage or damages. For comprehensive guidance, see our Cheap Car Leasing guide.

Car leasing need-to-knows

If you think car leasing is right for you, here are the need-to-knows to understand before opting for a new agreement.

1. You’ll never own the car, and when the lease ends your only option is to hand it back (or possibly extend it)

Once your lease term concludes, typically, you would arrange for the car to be picked up and returned. However, there might be an option to extend the lease. It’s advisable to contact the finance company several months before the lease ends to inquire about this possibility. They may also offer a reduced monthly payment since the car is now older.

When you return the vehicle, the finance company will schedule a collection and inspection. As long as the car is in good condition, with no damage beyond normal wear and tear, and remains within the agreed mileage limit, there should be no additional charges incurred.

2. You’ll pay hefty fees at the end if you damage the car or exceed the annual mileage allowance

Once your car is picked up and inspected, any existing damage will typically be pointed out and documented in a report. If there are damages exceeding normal wear and tear, such as significant dents, scratches, or broken parts, you will likely receive a bill to cover the repair costs.

After returning the car, you lose the opportunity to obtain other repair quotes. Therefore, it’s wise to address any major damage before the inspection to potentially reduce repair expenses.

Likewise, if you exceed the agreed mileage limit, expect to incur charges—typically around 10p per mile (verify the exact rate before signing the lease).

To avoid these expenses, agree on a reasonable mileage limit upfront and maintain good care of the vehicle. Always request a copy of the dealer or finance company’s fair wear and tear policy at the beginning of your agreement to understand potential fees.

3. Though you won’t own the car, you’re usually responsible for insurance, parking/speeding tickets and general upkeep (for example, servicing)

The leasing company retains full ownership and legal responsibility throughout the lease term. This arrangement entails them handling road tax payments, as well as settling any parking fines or speeding tickets incurred. These expenses, including road tax, are factored into your monthly payments, sometimes with an additional administrative fee for violations.

Additionally, you are accountable for servicing and insuring the vehicle, which should be considered alongside your regular monthly payment.

You may have the option to include a maintenance package in your lease agreement, typically paid for on a monthly basis. Such packages generally cover annual servicing and the replacement of tires, though specific policies can vary.

Before committing, it’s wise to estimate servicing expenses separately to ensure a balanced comparison, particularly since new cars usually require minimal servicing in their first year. Keep in mind that most mechanical issues are typically covered under the manufacturer’s warranty.

You typically require full car insurance (and must show proof)

Most leases mandate having comprehensive coverage, and you typically must furnish your insurance certificate before receiving the vehicle.

Once you have registration details and a confirmed delivery date, it’s prudent to obtain a quote promptly. Policies often cost more when acquired just before they are needed (the most economical time being approximately three weeks beforehand). For complete assistance and details, refer to our guide on Affordable car insurance.

4. You can usually end the agreement early, but it’s often costly

If you anticipate needing to terminate an agreement prematurely, it’s essential to thoroughly review the terms and conditions before committing, as not all leasing providers permit early termination.

Even if they do allow it, this option typically comes at a significant cost because the leasing company aims to mitigate potential financial losses.

Lease agreements are structured to account for depreciation—the decrease in value of the vehicle from its purchase price to its estimated resale value.

Since cars lose value rapidly in the first year of ownership, returning the vehicle before the lease term expires often results in substantial depreciation, making it worth considerably less than what the leasing company anticipated.

Consequently, an ‘early termination’ fee is imposed, usually as a lump sum payment. This fee generally amounts to around 50% of the remaining lease payments, though specifics can vary, so it’s crucial to verify. For instance, terminating a £200 per month lease after one year might require a payment of £1,200. Typically, this fee is charged in addition to any fees for damage or excess mileage.

5. You normally need to pass a credit check, and could lose the car if you miss payments

When you submit an application, the lender will conduct a credit check to determine whether to extend credit to you, and this inquiry will be recorded on your credit report as a credit application.

Credit assessments for leasing arrangements tend to be less stringent compared to those for personal loans. This is because the financing is secured against the vehicle itself – if payments are not made, the lender can reclaim the car, unlike unsecured loans where legal action might be necessary.

If you find yourself unable to meet repayments, it is advisable to contact the leasing provider promptly, ideally before the next payment becomes due. Informing them of your difficulties allows them to potentially offer an alternative and manageable repayment plan.

Failure to make a payment will typically prompt the lender to reach out to discuss the issue. Persistent missed payments may lead to a ‘default’ status being applied. In such cases, the lender may repossess the car promptly to avoid further depreciation in its value.

In addition to repossession, failing to meet repayment obligations will result in a default notation on your credit report, potentially impacting your ability to secure future credit such as mortgages. For further details, refer to our comprehensive Credit Scores Guide.

6. Pay the deposit with a credit card (even just 1p) for valuable protection – for cars worth up to £30,000

You can bypass monthly payments by partially using a credit card, even if it’s just a small amount like 1p, to gain added protection in case of future issues. This leverages Section 75 regulations, which ensure that if something goes awry with a purchase costing between £100 and £30,000, the credit card issuer (or sometimes the finance company) shares responsibility with the seller.

However, it’s not always a straightforward process. Certain sellers may not accept credit cards at all, or they might have limitations on how much can be paid using cards. Assess the importance of this protection and inquire with your chosen seller about their payment policies before making a decision.

If you need financing for the initial payment, using a 0% spending card is the most economical approach since it avoids interest charges when managed correctly. For comprehensive guidance and top recommendations, explore the best options available for 0% spending cards.

How do I compare car leasing deals?

To aid in uncovering the finest car lease bargains, numerous comparison platforms meticulously sift through a plethora of offers provided by dealers and brokers across the UK. These offers typically fall into two categories:

1. Stock cars: These vehicles are already within the UK and are typically ready for delivery within a few weeks. However, they come without customization options.
2. Factory orders: Opting for this route involves a longer wait, often several months, as the car is yet to be manufactured. This option is ideal for those interested in tailoring specifications or adding extras such as a panoramic roof.

If the most economical deal originates from a dealer far from your location, don’t be discouraged. Many dealerships offer complimentary delivery to your doorstep. Additionally, you retain the flexibility to have the car serviced at any franchised dealership or return it if issues arise. Should you prefer dealing with a local dealer, it’s worthwhile to present the best quote received and inquire if they can match or surpass it.

How to find the cheapest car leasing deals

Explore numerous car lease offers online by specifying a particular model or setting your budget, desired contract length, or vehicle type like SUV or convertible. Follow these tips to secure the best deal:

• Evaluate Total Cost: Compare the overall expense throughout the entire lease term. Don’t get swayed by low monthly payments, as they often hide substantial upfront deposits. Focus on the total cost, including monthly payments multiplied by the number of months, plus any additional deposits and fees. For instance, in a 6+23 deal at £150 per month with a £199 processing fee, your total payment over two years amounts to £4,549 (29 x £150 + £199).
• Compare Against Alternatives: Measure this cost against other lease offers of similar duration or different financing options. Also, consider whether this total exceeds what you estimate the car’s depreciation would be if you bought and resold it independently.
• Adjust Contract Length: Experiment with different lease terms, as some offers are restricted to specific durations. There’s no universal rule; sometimes shorter terms may be more economical annually compared to longer ones.
• Consider Mileage Realistically: Factor in your anticipated mileage carefully. Higher mileage typically results in higher costs; hence, set an allowance that you can adhere to without facing excess charges later.

To facilitate your search, here are our recommended comparison platforms, noted for user-friendly interfaces and listed in alphabetical order. Combining these tools ensures access to the widest array of lease deals.

Comparison site (in alphabetical order)	Why we like it
AutoLeaseCompare.com*	AutoLeaseCompare.com* lets you sort by monthly cost and total upfront cost, as well as by average monthly cost and total cost overall, which factor in any upfront costs part of the deal. This makes it easier to see exactly how much you’ll pay over the course of the lease.
LeaseLoco.com*	LeaseLoco.com* first lets you home in on cars within your monthly budget, then lets you filter deals based on your preferences. It has a ‘Loco Score’ to help you figure out if the deal’s good value for money, but offers no way to sort by total cost. You’ll need to manually add the initial payment to the monthly payment multiplied by the lease length to get this figure, so it’s trickier to compare.
Leasing.com*	Leasing.com* shows all car deals for your budget (or by make/model) plus you can sort by total cost for true ease of comparison. It also has a nifty value rating to give an idea of how the lease compares with the depreciation of buying and selling the same car over the same period, which can be handy to identify standout special deals – though it’s not an excuse to exceed your budget.
Moneyshake.com*	Moneyshake.com* allows you to sort by monthly cost or total lease cost which gives a fuller picture of what you’ll have to pay including fees. However, you’ll need to enter your contact details in order to proceed with taking out the lease, as this is done over the phone rather than online.

What happens once I’ve found a car leasing deal?

You have the option to contact the leasing provider via the comparison site, although it’s wise to also check if there are potential savings by contacting them directly. Simply visit the provider’s own website and review the available offers there.

Typically, the entire process cannot be completed online, so you may need to initiate an inquiry about your preferred car or request a callback. The provider will then collect your information, conduct a credit check, and process any applicable fees. Once everything is processed, you’ll receive notification when the vehicle is ready, along with its registration details, allowing you to arrange comprehensive car insurance. Finally, you’ll schedule a convenient delivery date.

Upon delivery, take the time to thoroughly inspect the car both inside and out to ensure there are no damages or marks. If you identify any issues, ensure they are documented before signing for acceptance; otherwise, you may be held responsible upon returning the vehicle.

Want to complain about your car finance provider?

If you suspect that your car finance agreement was improperly sold to you, refer to our detailed guide on reclaiming car finance.

Alternatively, you can lodge a complaint if your car finance provider has made incorrect payments, treated you unfairly, or provided inadequate service. It’s advisable to contact the lender initially to seek resolution, but if that fails…

You have the option to utilize Resolver, a free complaints tool. This tool aids in handling your complaint and, if necessary, escalating it to the Financial Ombudsman Service at no cost.

Car leasing Q&A

Q – How much is a car lease per month?

A – You’ll begin by making an initial deposit, followed by regular monthly payments over a specified period, typically ranging from two to four years. Opting for a higher initial deposit reduces the monthly payment amount, although the specific amounts vary significantly depending on the make and model you select.

As a rough estimate, leasing deals for an entry-level small hatchback start at approximately £120 per month, requiring a deposit that ranges from six to nine times that amount (equivalent to £720 to £1,080) over a four-year lease. Monthly payments for luxury premium cars can extend well into the £1,000s.

Regardless of the car model chosen, the critical factor for comparison remains the total cost, which includes the initial deposit. While a lower monthly payment might seem attractive, a substantial upfront deposit could result in higher overall expenses.

Q – How do I estimate my mileage?

A – Determining how many miles to budget for largely hinges on your anticipated use of the vehicle. Will it primarily serve for weekend errands or a daily commute? Consider this scenario:

Take Anne, for instance, who commutes Monday through Friday, covering a 10-mile distance each way. This equates to a minimum of 100 miles weekly. Factoring in four weeks of annual leave, her commute alone totals 4,800 miles annually. This figure excludes additional weekend drives and vacation travel.

Therefore, for Anne, a reasonable estimate would range between 6,000 to 8,000 miles per year on average. It’s prudent to allow some flexibility in your projections to accommodate unexpected trips.

Q – Will insurance be included in the lease deal?

A – The leasing firm supplies the vehicle, but obtaining car insurance is your responsibility. Comprehensive coverage is typically mandated for the lease, and you must furnish your insurance certificate before receiving the vehicle.

Upon receiving the registration information and confirming the delivery date, it’s advisable to promptly request a quote. Insurance premiums often increase significantly when purchased at the last minute, compared to obtaining them well in advance. For detailed assistance and information, refer to our comprehensive guide on affordable car insurance.