Guide to Car Leasing
For years now people have bought a car on PCP finance (Personal Contract Purchase) with low monthly payments, allowing you to get into a lovely new car easily and cheaply. But over the last 6 years or so car leasing (Personal Contract Hire), has absolutely exploded with industry bodies like the BVRLA showing over 25% growth per year.
So why leasing then?
Price. Simple as that. People want to pay less for their car each month and leasing can be as much as 50% cheaper than the equivalent PCP deal. So to the savvy consumer, it’s been an attractive and easy switch. The whole misconception of ‘ownership’ has gone out the window with people now focussed more on ‘usership’ – use the car, hand it back, get another nice shiny new car. And people are quickly realising that if you run a PCP deal to the end of the term and hand it back, there is no difference to your motoring experience.
A lot of people also enjoy the idea of getting a new car every few years without having to worry about reselling their car. What’s more, with websites such as LeaseLoco, the UK’s biggest car leasing comparison site, it is really easy to find a lease deal with the best prices on the market in just a few clicks, normally with some 10 million+ deals at your fingertips to browse.
Leasing a car is a new concept for a lot of people so read on for a simple car lease guide to give you an insight into car leasing and some advice to make sure you get a great deal.
What’s included in a car lease?
Manufacturer’s warranty, road tax & breakdown cover will usually always be included in your lease, giving more peace of mind for people. Certain leasing companies will also provide free delivery of the new car to your doorstep.
Usually, the costs of maintenance and servicing aren’t included automatically in a lease deal, but these can be added through the leasing company if they provide the purchase of maintenance packages. The only other thing that needs to be organised is insurance. Every car on the road in the UK is lawfully required to have insurance and this goes for leased vehicles too. It’s almost the same as insuring a car that has been bought, but the biggest difference is that the leasing company will be the registered owner of the car. The good news is that this means they are responsible for road tax on your car; another saving
Thinking about your budget
A great part of choosing a lease deal is that you are able to choose how much you want to pay upfront. Some people prefer to pay a larger initial payment to keep their monthly payments low, while others don’t want to pay a huge cash payment and would rather opt for a low or no initial rental deal. Either way, the total lease cost will usually be the same whether you pay nine months upfront or just one – so you’re not losing out if you don’t have large sums of money kicking around!
A small tip
If you come to the end of your lease, most lease companies will allow an informal extension to cover things like waiting for your new car to arrive. If you pay a larger upfront payment, then your monthly payment will be less, creating a lower informal monthly payment if you need to use that option.
What happens at the end of a car lease?
Once your lease contract comes to an end, all you need to do is hand back the car to the company, who will usually collect it for free! They will check the paperwork, inspect the car for any damage and check the car is within its mileage limit. If you plan ahead and are taking another deal, you could get your new car delivered at the same time as the other is being collected – avoiding any long waits in between!
A common misperception about car leasing is with the condition it needs to be handed back in. A lot of people assume that the car needs to be in it’s brand new condition when returning it back to the leasing company, but this isn’t the case at all! It is never expected for a lease car to be in brand-new condition at the end of the lease, and wear and tear on the car won’t constitute for damage costs to be paid.
There are actually Fair Wear and Tear guidelines issued by the BVRLA (British Vehicle Rental and Leasing Association). These are guidelines which state things like small chips; a certain amount of dents; scratches up to 25mm and alloy scuffs up to 50mm are acceptable. Of course, you won’t be able to have hundreds but this gives you an idea of the guidelines. Potentially another great thing about leasing and not needing to stress about reselling or trading in with wear and tear.
When selecting a lease deal, you can select your annual mileage. The differences in mileage will mean a difference in price. So you want to have a think about how many miles you do every year, but this is often something that worries people who have concerns about predicting their annual mileage and getting charged if they go over this. But this isn’t as scary as a lot of people think! It is pretty straightforward to renegotiate your contract mileage during your lease if you think you will go over. This also works the other way if you have overestimated your mileage and want to reduce your mileage to save money. So, when circumstances change in the current uncertain climate, there’s flexibility either way.
What many people are doing due to COVID at the moment is taking a lease deal with lower than usual mileage for them. This makes sense as if further lockdowns are announced, you’re not paying for mileage you’re not doing. And if you do go over your contract mileage, the penalty may not be more than buying the mileage upfront and having it included in the contract from the outset.
Mileage penalties on cars often range from 7p – 11p. Obviously they can be more so always check your contract! But essentially, one way to think of this is that if you go over your mileage allowance by 1,000 miles, you would be charged around £70 – £110. Another little tip –if you’ve mid contract, you can call the lease company to increase your contract mileage and it will often be less per mile to do this than wait till the end of your contract.
Chase the deal and track the prices
One of the things with car lease deals is that they are pretty volatile and fluctuate all the time, and fast. If you have spotted a deal that you are interested in, don’t hang around contemplating for too long as there is the possibility the deal will sell out, even on Factory Order cars, as the allocations will likely be limited. Another thing to consider when searching for a great lease deal is to have an open mind. If you know the exact spec model of the car you want, leasing will still likely be cheaper than buying. Although, if you are open to similar cars and models, you have a better chance of grabbing a bargain deal and seeing big price drops to snap up.
But how do you know if you are getting a good deal? Certain websites such as LeaseLoco have features such as their ‘Price Historical Charts’ to give you context on what is a good deal by showing you the previous prices of the deal on a graph; or a ‘Loco Score’ which is a unique algorithm that shows you what is a great value deal, and what isn’t.
Why am I better off leasing than getting a PCP deal?
Leasing a car has some really great benefits that we have previously mentioned including that the cars are covered by manufacturer’s warranty; road tax & breakdown cover is often included; you don’t need to worry about reselling the car at the end; and the lease payments are often the lowest costs you will get for a brand new car. Not only do you get a brand new car every few years, but you also don’t need to worry about the depreciation of the car as you simply hand it back.
There are advantages to buying a car as you have full ownership of the car and can do what you want with it and sell it at any time you like. However, the value of the car will depreciate with time, which means that you won’t be able to sell it for as much as you paid, and it’s value will decrease.
When buying a brand new car it’s value will usually drop in half within the first 3 years.
The choice is up to every individual as some people really appreciate owning their own car and getting an asset, even if it is a depreciated one. However, due to the incredible cost savings and being able to drive a brand new car at low monthly costs with leasing, a lot of people find that leasing a car is the better option.
No matter if you choose to buy or lease a car, remember to shop around! The key takeaways if you are opting for a lease are:
- Leasing a car will allow you to have a brand new car through fixed low monthly payments
- Manufacturer’s warranty, road tax & breakdown cover are ALL usually included in car leases
- You can select a deal to best suit your budgeting needs
- Think about how you can win on mileage, don’t overestimate it but also know you can renegotiate either way during your lease
- Keep an eye on tracking the prices to see what is a great value deal, and what is not
Frequently Asked Questions
When you lease a car, it is the same concept as leasing or renting a property. You will usually pay an initial payment (like a flat or house deposit) and then pay monthly payments for an agreed amount of money for an agreed amount of time. A landlord owns a flat, but you live in it. This is similar to car leasing where the leasing company owns it, but you lease it. When the contract ends you give the car back, like moving out of a property! Just as a flat or house is inspected when you move out, the car will be inspected when you give it back to see if there is any excessive damage. Like we mentioned in the article, you shouldn’t worry to much about this though as a lot more falls into wear and tear than you might think!
PCP, a Personal Contract Purchase, is when you will own the car, the V5 will be in your name, and at the end of the deal, you can either keep the car and pay the balloon payment off or you may decide that you don’t want to keep the car and you want to give it back.
A Lease Purchase is very similar to a PCP, but you will pay a balloon payment at the end of the contract so the car is yours. Contract Hire is what LeaseLoco offers, so instead of owning the car – you lease it. You pay an upfront fee, which can be from one month to twelve months upfront depending on your choice. Then, at the end of the contract, you give it back, start a new one and get a brand new car again!
Nope! One of the best things about car leasing is that you can decide on your payment profile to suit you best, whether that be one month or nine months upfront. You also don’t need to worry about it costing you more if you choose a lower initial payment as deals will usually cost the same no matter how many months upfront you pay.
Cars that are in stock are ones that have already been built and can be delivered to you in about 2-3 weeks. If you choose a stock deal then you will be choosing from a pre-selected range of colours and spec options. If you choose a factory order deal instead then this won’t have been built yet and will take around 3 months to be delivered to you. With a factory order you get to choose options and colours for your car as it hasn’t been built yet!