Personal Car Leasing

Want a new car but don’t want to splash the cash? Personal car leasing could be the way forward for you. It can be a hassle-free, cost-effective way to get behind the wheel, particularly if you’re after a brand spanker and can’t afford it outright. That said, there are lots of options to choose from and also be aware of in order to ensure you get the most suitable deal for you.

This handy guide will tell everything you need to know about the subject- options, pitfalls, pros and cons.

Car Leasing Explained

Car leasing is a bit like renting:

  • You sign for a set period of time, you never own it and you hand the keys back at the end.
  • You don’t have to worry about the age of the property as it’s not yours – same with leasing. The loss of value over time is not your concern.
  • You don’t have to worry about re-letting the house when you move out, the same way you don’t have to worry about selling the car when you’re done. You simply hand back the keys to the dealer at the end of the agreed term.

Whereas car hire is more on a par with a hotel stay in that its short term; usually a day or a week, car leasing is a longer term solution and can occasionally provide the option to purchase the vehicle over time. In fact, leasing means you can swap for a new model every few years, meaning you will never have to worry about the warranty expiring.

With some car leasing deals you can even pay an extra monthly fee to cover any maintenance costs, so you wont be out of pocket for any problems with the car.

Of course the downside of leasing a vehicle is that typically you won’t own the car at the end of the agreement, unless this is part of the deal (be sure to clarify!)

Also, car leasing deals often also come with mileage restrictions – charging you by the mile if you exceed those restrictions so it’s really important to have a good idea of how much mileage you do in advance of entering negotiations. What might seem like a good deal upfront may end up charging you through the nose at the end.

I am aware there’s a lot to consider so I’ve tried to break it down into manageable chunks below. Here’ a look at how it works in more detail.

How does car leasing work?

Initially you will have the choice of a wide range of vehicle makes and models. The monthly payments will get higher the higher the value of car you start looking at. Although, there are a number of things to take into consideration that could alter your monthly payments.

One of these to take into account is depreciation. You see, as cars that retain their value better will cost the dealer less over time and therefore cost less to lease each month. Cars which lose the most value have the highest monthly payment, as the dealer will want you to their losses.

Once you’ve made that all important selection you’ll be asked to agree contract terms around how long you will be leasing the car for, how many miles you will put on the clock each year and how much you are expected to pay each month for the lease. There is also the optional extra of maintenance.

The number of miles you are willing to commit to is impactful because the more miles a car does, the bigger its reduction in value – so your mileage estimate gives the dealer an indication of how much the car will depreciate / lose value over the course of the lease.

The dealer will charge you a standard fee, outlined in your contract, for every mile you drive above the agreed annual limit.

Generally, direct debit is used to take the set payments from your account each month so you don’t have to worry about missing one.

At the beginning of the lease it likely you will be charged an upfront fee equal to two or three months’ worth of payments and many lease agreements will charge a penalty fee if you choose terminate the lease agreement before the end of the contract term.

Business Car Leasing

Business car leasing is different to personal car leasing. Vehicle leasing can be a viable option for companies as the monthly lease payments can be declared as tax-allowable expenses. You can also reclaim some of the VAT; if the vehicle is used exclusively for business then you are entitled to 100% of the VAT or 50% if it is also used privately (all providing the business is VAT registered of course.)

This model is only suitable for certain business types as you will also be charged on the mileage that exceeds the initial annual mileage agreement as with personal car leasing. So it will depend on the type of business you have, for example a national sales rep may not cost the business a lot in excess mileage if they are continuously travelling the country.

Things to be aware of…

New cars tend to have a warranty that lasts for the first two or three years, so it may not be cost effective to double up on a maintenance package offered by the dealership (they will always push it because this is where they make their money!)

However, manufacturers warranties don’t cover everything. Wear and tear on things like tyres and batteries are probably not going to be included so it’s important to properly check just what the maintenance cover does and doesn’t cover.

If you do opt for maintenance cover, find out if you will be given a courtesy car in the event that the one you’re leasing is going to be off the road for an extended period of time.

An additional check – it’s always worthwhile being aware what the penalties are for missing a monthly payment, or for exiting the agreement before the contract term expires.

Most agreements will be priced as standard based on an annual mileage of 10,000 miles so be sure to clarify if it is more. We discussed annual mileage earlier but I just wanted revisit it to try and help you avoid the trap that many people fall into time and time again. Make sure you agree to a realistic annual mileage limit. It is always tempting to under-estimate how many miles you’ll travel in a year in order to get cheaper monthly payments, but that saving could be outweighed by excess mileage charges at the end of the agreement.

And the last, and most important thing; as a leased car doesn’t belong to you, you’ll need fully comprehensive car insurance. Third party cover would only pay for damage to the third party’s vehicle in the event of an accident, so you’d be left with a hefty bill for repairs in order to avoid charges for the damaged car being returned. Car insurance for a leased vehicle is easy enough to source so you shouldn’t have any problems there- although the premiums tend to be slightly higher than if you were the legal owner of the car. It’s only a small-ish difference is price though, about £10-15 a year, so if you think leasing is more appropriate for you it’s probably worth paying the extra.


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