Car Leasing Guide: Everything You Need to Know

What is Car Leasing?

Car leasing is essentially a long-term rental agreement. You pay a fixed monthly amount to use a brand-new car for an agreed period (typically 2-4 years) and an agreed mileage limit. At the end of the lease, you simply return the car to the leasing company.

Unlike PCP or HP finance, with leasing you never own the car - you're effectively renting it for the duration of the contract. This is why leasing is sometimes referred to as Personal Contract Hire (PCH).

How Does Car Leasing Work?

The car leasing process typically works as follows:

1. Initial Payment

Instead of a deposit, you pay an initial rental payment which is usually equivalent to 3, 6, or 9 months of your regular monthly payments. The higher this initial payment, the lower your subsequent monthly payments will be.

2. Fixed Monthly Payments

You then make fixed monthly payments for the duration of the lease agreement. These payments cover the depreciation of the car during the lease period plus interest and fees.

3. Return the Car

At the end of the lease period, you simply return the car to the leasing company. There's no option to buy the car (unlike with PCP finance), although some leasing companies may offer you the option to extend your lease or take out a new lease on a different car.

Key Terms in Car Leasing

Initial Rental

The upfront payment you make at the start of the lease.

Annual Mileage Limit

The maximum number of miles you're allowed to drive each year. Exceeding this will result in excess mileage charges when you return the car.

Lease Term

The length of the lease agreement, typically 24, 36, or 48 months.

Residual Value

The estimated value of the car at the end of the lease period, which is used to calculate your monthly payments.

Fair Wear and Tear

The acceptable condition the car should be in when you return it. Excessive damage beyond fair wear and tear will result in charges.

Advantages of Car Leasing

• Lower monthly payments compared to PCP or HP finance for the same car
• Drive a new car every few years with the latest technology and safety features
• No depreciation worries as you don't own the car
• Road tax is usually included in the monthly cost
• Maintenance packages can often be added to cover servicing costs
• Lower upfront costs compared to buying a car outright
• Simple budgeting with fixed monthly payments

Disadvantages of Car Leasing

• You never own the car and have nothing to show for your payments at the end
• Mileage restrictions with potentially expensive excess charges
• Charges for excessive wear and tear when you return the car
• Early termination fees can be substantial if you need to end the lease early
• No flexibility to modify the car as it must be returned in its original condition
• You're tied into the contract for the full term

Leasing vs. PCP: What's the Difference?

Car leasing (PCH) and PCP finance are similar in many ways, but have some key differences:

Feature	Car Leasing (PCH)	Personal Contract Purchase (PCP)
Monthly payments	Generally lower	Usually higher than leasing
End of agreement	Return the car only	Options to buy, return, or trade in
Mileage limits	Yes, with excess charges	Yes, with excess charges
Ownership	Never own the car	Option to own after final payment
Initial payment	3-9 months' rental upfront	Deposit (usually 10-20%)
Early termination	Usually more expensive	Can be more flexible
Best for	Those who definitely want a new car every few years	Those who might want to own eventually

Is Leasing Right for You?

Car leasing might be suitable if:

• You want to drive a new car every few years
• You prefer lower monthly payments
• You don't want to worry about the car's future value or selling it
• You drive a predictable number of miles each year
• You take good care of your vehicles
• You're comfortable never owning the car

Car leasing might not be suitable if:

• You want to own a car eventually
• You drive high or unpredictable mileages
• You want to modify the car
• You need the flexibility to change cars or end the agreement early
• You're likely to cause more than normal wear and tear

How to Get the Best Lease Deal

To find the best lease deal for your circumstances:

• Compare multiple offers from different leasing companies
• Be realistic about your annual mileage to avoid excess charges
• Look for special offers - manufacturers often subsidize lease deals on certain models
• Consider the total cost, not just the monthly payment
• Check what's included in the lease (e.g., road tax, breakdown cover, maintenance)
• Understand the wear and tear policy and what charges might apply
• Negotiate - particularly on the initial payment or monthly cost

Using Our Lease vs PCP Calculator

To compare the costs of leasing versus PCP finance, try our Lease vs PCP Comparison Calculator. You can adjust variables like:

• Car price
• Initial payment/deposit
• Term length
• Mileage
• Interest rates

This will help you understand which option provides better value for your specific circumstances.