Car leasing, and specifically a contract type called 'Personal Contract Hire', allows you to drive a new vehicle for a set time (usually between 2-5 years) by paying fixed monthly rentals until your contract ends. When the contract ends, you simply return the vehicle to the hire company & you can choose to upgrade to a new car again – just like you would a mobile phone contract.
Leasing is an increasingly common alternative to buying a car outright & removes the need to use other costly financial options, such as taking out a personal loan. So, if you're looking for a new car, read our simple guide to leasing below and find out how it works.
How Does Car Leasing Work?
You simply choose the car you want to drive & tailor the deal depending on the following criteria:
How long you want to keep it for.
Your annual mileage.
Whether you need a personal or business lease.
If you want to add a maintenance package to your lease.
After choosing a vehicle, you will need to undergo a credit check. This is when the finance company verifies that you can comfortably afford the payments, & if you have a higher credit score, you may be offered a better interest rate.
Once your finances have been approved you'll need to sign some documents and that's it, your car will be delivered free, safe and contactless direct to your door.
When the contract finishes, the car is returned to the finance company. When you bring back the vehicle, it will be inspected for damage & excess mileage. Don't worry about the end-of-contract damage charges – you've been driving the vehicle for up to 5 years, a bit of damage is to be expected, that's why it's called 'Fair Wear & Tear'. Take a look at our comprehensive wear and tear guide for more information.
Is Leasing Right For Me?
Car leasing is a good idea if you:
Like driving a new car every few years.
Will keep the car in good condition – apart from wear and tear.
Can afford to pay the fixed monthly rentals.
How Are My Monthly Payments Calculated?
Your monthly payments are worked out based on 4 things:
Total Cost Of The Vehicle
Some manufacturers & models are more expensive than others. If you choose a premium vehicle, your monthly payments will be higher.
The interest rate offered on your lease deal will depend on the finance company. We work with over 10 funders to ensure you get the best price available first time. Finance companies are more likely to offer a lower interest rate if you have a better credit score.
Size Of Your Initial Rental
The initial rental is normally between 1-12 months' worth of your deal's monthly rentals. Simply put, the more you pay in this initial rental, the lower your monthly rental payments will be.
Every car loses value over time & this is a critical part of the leasing process. Your lease cost will be calculated based on the vehicle's residual value, which is another way of saying how much it will be worth when the agreement ends. So this means how many miles you'll do and how long you want to keep the car will be factors in the cost.
Essentially, you pay for how you use the car – the greater your mileage, the more expensive your monthly payments will be. This is because the vehicle will depreciate further the more you drive it. The length of your contract can affect this too.
However, remember that with leasing you're only paying to use the car for a fixed length of time, so you avoid paying the full depreciation cost.
What Is Personal Contract Hire?
Personal Contract Hire is just another way of saying leasing. This type of agreement is intended for individuals. If you own a company or your vehicle is hired through your employer, it's known as business leasing or Business Contract Hire (BCH).
Should I Opt For Business Contract Hire?
Limited companies, sole traders & other businesses can benefit from Contract Hire because there are several VAT & tax advantages. If this applies to you, make sure to opt for a business lease deal to save even more money on leasing your next vehicle.
What Is Included With Car Leasing?
Your lease will include:
A new car of your choice.
Free delivery to mainland UK.
A full manufacturer's warranty.
Road tax is already included in your monthly rentals.
Free collection when the deal ends.
You can also add a maintenance package to your contract as an optional extra, which includes servicing, routine repairs & replacements.
What Is The Difference Between Leasing & PCP?
With PCP, you have the option to buy the car at the end of the contract by making a 'balloon payment' which is equivalent to the remaining value of the total cost of the car. This balloon payment is agreed to at the beginning of the PCP contract, so if your car is worth less than expected you will be in negative equity and end up paying more than your car's real value.
When you lease with Vanarama and PCH you don't own the car, but you do not need to worry about the car's value when the agreement ends. Learn more about car leasing vs. PCP in our simple guide.
Are There Any Limits With Leasing?
There aren't many restrictions when you lease a car – you can tailor the deal to suit your requirements & budget.
Be aware that you will be charged extra if you exceed your agreed total annual mileage. If you aren't sure how many miles you drive each year, it's better to overestimate this at the beginning of your lease. You should always inform the leasing company if you think you're going to go over your mileage allowance.
Lease cars also need to be returned in good condition. The company will consider any damage to the vehicle according to the BVRLA's Fair Wear & Tear guidelines, but serious damage must be repaired to the minimum standard. For example, a minor scuff on the vehicle's paintwork (no larger than 25mm) is considered as acceptable, but you'll need to pay to fix larger dents or deeper scratches.
One other thing to consider is that you need permission to take your car abroad when you lease. You can request a letter of authorisation from us and we'll be happy to provide the documents.
How Quickly Will I Receive My Car?
Most of our cars are already in stock & ready to be delivered directly to you from a UK supplier, so will often be delivered to you within 2-3 weeks. If you're considering a vehicle which is not in stock, it can take anywhere between 8-22 weeks for it to be delivered.
What Happens If I Want To End My Contract Early?
If you need to postpone or cancel your order before delivery, we will give you a full no-quibbles refund.
If it's later into your agreement & your circumstances change, contact us or the finance company as soon as possible so we can offer advice on what to do next. If you need to cancel your contract early there is likely to be an early termination fee. However, we may be able to help you extend your contract & lower your monthly payments to make them more affordable so do get in touch.
Having read our simple guide, if leasing sounds like it's right for you, start your search online & check out all our available deals. Or, if you're still not sure, read our guide on getting the best price on your next car to see how affordable leasing can really be.