Car leasing

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What is car leasing?

Car leasing is the long-term rental of a vehicle. You won’t own the vehicle and the leasing company will be the registered keeper. You sign a rental agreement allowing you use of a car in return for paying a monthly amount for a set period. Once this ends, you hand back the car and you can either start another lease deal on a new car or walk away.

Lease agreements tend to last between two and four years.

Car leasing

How do car lease deals work?

  1. Choose the type of car you want to lease, including make and model

  2. You’ll also need to select the initial payment, which is a lump sum that you pay at the start of the rental agreement

  3. Decide how long you want to lease the vehicle for, also known as the contract length

  4. Estimate your annual mileage

  5. You can then compare the options available from different leasing companies to get the best deal

  6. Apply for your chosen deal, you’ll be subject to a hard credit check, and if you’re accepted, your new car will be delivered to your home, or you can pick it up

  7. You make monthly payments for the duration of the contract length

  8. Once your lease agreement has ended, your car will be picked up or you can drop it back to the leasing provider. You won’t have anything else to pay, unless you’ve damaged the vehicle

Who can lease a car?

You’ll need to have had a full UK driving licence for at least a year and there may be age restrictions, for instance you must be over 18 years old.

Also, because you’re entering into a financial agreement your credit history will be analysed, as well as your income and existing debts. This means that having a good credit score is important as the provider will want to know that you can comfortably afford the payments and aren’t likely to default, leaving them out of pocket.

If you're a younger driver who is yet to build up a healthy credit history, you might find it hard to be accepted for a lease agreement.

Is car leasing right for me?

It can be a cheaper option than car finance, especially if you prefer to have a new car every few years and have a good credit score. Also, you don’t have to worry about your vehicle dropping in value and having to sell it in the future.

However, you won’t own the vehicle, so if you default on your payments, it can be taken back by the leasing company and there’s no option to purchase the car.

How much does car leasing cost?

It will depend on a few different factors:

  • Value of your chosen car – A more expensive make and model of vehicle means higher payments
  • Length of contract – Opting for a longer lease can make your monthly payments cheaper
  • Annual mileage – Cars depreciate the more they’re driven, so the lease company will try to recoup the loss by charging more if you have a higher annual mileage. You can usually choose options between 5,000 and 30,000 miles
  • Initial payment – This must be paid at the beginning of your lease agreement and can be equivalent to one, three, six, nine or 12 months’ payments. A larger initial payment will usually result in lower monthly payments

How to get cheaper car leasing deals

If you want to cut the cost of leasing a car, try to:

  1. Choose a model of car with a lower value

  2. Pay a higher initial deposit, if possible, but don’t leave yourself out of pocket

  3. Opt for a longer lease, but be aware that you’ll need to start paying for an annual MOT if your agreement is longer than three years

  4. Try to limit your annual mileage to keep costs down

  5. Refrain from making any modifications to your lease car – if they’re irreversible changes you’ll be charged

  6. Limit the optional extras (like tinted windows and in-built sat-nav). Adding them to your rental agreement will increase payments

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Why compare car leasing with GoCompare?

If you’re considering leasing a car, here are the advantages:

  • You can lease a new car every few years, without having to worry about selling it and how much it has depreciated in value
  • Choose how long you want to lease the car for, so it suits your circumstances
  • If your lease is less than three years, you don’t have to worry about a MOT
  • Road tax is paid for by the lease company
  • Fixed monthly payments can help you budget and you can choose how the large the initial payment is

Do I need to insure a leased car?

Even though the lease company is the registered keeper of the vehicle, you’re still responsible for getting car insurance for your lease car.

It works in the same way as buying cover for a car that you own, so the best thing to do is compare the options available. You can choose the level of cover you need for your lease vehicle and see how the policies stack up against each other easily.

Frequently asked questions

  • It can be a little more difficult to lease a car if you have a poor credit score, but it’s not impossible. This is because you’re perceived as more at risk of defaulting on your payments than someone with a track record of repaying debt on time.

    You may be able to find a specialist company that’s willing to lease a car to you though.

    Find out more about loans for people with bad credit.

  • At the end of the deal, you hand back the car to the lease company. If you have damaged the vehicle beyond normal wear and tear, you’ll be liable for costs. If it’s still in good condition, you’ll owe nothing.

    It’s then up to you whether you want to enter into another lease agreement on a different car or not. The lease company will usually come and pick up the car from your home.

  • Yes, it’s possible to extend your lease.

    You can do this through an informal extension, which is designed to be used if there’s a gap between the end of your current lease deal and your next one. It’s usually less than six months and you’ll keep the same terms as your current deal for this period.

    Alternatively, you can choose a formal extension, which can last up to 12 months and the terms of the agreement will be changed, so you’ll be charged a different monthly amount.

  • If you’re likely to want to buy a new car every few years, then leasing will be a cheaper option than buying.

  • Yes, it’s possible for a business to lease a car or even a fleet of cars. Although you’ll be required to demonstrate that the company is able to afford the payments, just as with a personal lease.

  • You’re not liable to pay road tax as that’s the responsibility of the registered keeper of the vehicle, which is the lease company.

    You only need to book your car in for a MOT after three years, so if your lease agreement is shorter than this, you won’t need to pay for a MOT.

  • Unless you have chosen to include breakdown cover as an optional extra on your lease deal, you’ll need to purchase it yourself.

    Breakdown cover can help get you back on your way if your lease car grinds to a halt and you’re stuck by the side of the road. Without it, you could end up paying a lot of money for a local garage to come and help you.

  • No, there’s not an option to purchase the car once your lease is finished. If that’s something you’re considering, you’ll need to look at car finance options instead, like a personal loan, personal contract hire (PCH), personal contract purchase (PCP) or hire purchase (HP).

  • Yes, there are companies that specialise in short-term leases, usually between three months and a year. There are business and personal use options and it can be cheaper than daily rentals.

  • You’ll be able to purchase the car at the end of the contract with PCP by making a balloon payment, whereas with PCH you don’t have the option.

    Find out more about the different car finance options.

  • There’s no definitive answer, but it should take no longer than a month to receive your lease car. If the vehicle is in stock, it could be with you within a couple of weeks but if not, it will take a little longer.

  • You are if the damage goes above what the lease company classes as wear and tear. What constitutes damage will be outlined in the terms and conditions, or you can get in touch with the company to verify.

  • You can, but it’s usually not worth it because you’ll be required to pay an early termination fee, as well as the outstanding balance on your lease agreement.

  • Yes, it can be possible for young drivers to get a vehicle lease agreement, but it may be more difficult if they’re yet to build up a good credit score. Most companies will have a minimum age limit though, so it’s worth checking.

  • Yes, it’s possible to part-exchange a vehicle that you own for a lease car, and it can make your payments cheaper.

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