What is car leasing?
October 11, 2021 by carwow
Do you like the idea of driving a new car, but don’t have the budget to buy one outright or with a finance agreement? Then it may be worth having the car leasing option on your radar.
At face value, car leasing is a very simple and straightforward way of driving a new car – put simply, you’re renting a car over a specified period of time. However, there are some important things to bear in mind if you’re seriously considering a car lease, and this guide will go through everything that you’ll need to know.
- What is car leasing?
- Do I pay monthly?
- Do I own the car?
- Is mileage limited?
- What cars are available to lease?
- Will the car be delivered to my door?
- What about road tax?
- What about servicing?
- What about the MoT?
- What about insurance?
- Is my leased car covered by the manufacturer’s warranty?
- What if I crash my leased car?
- What happens when the lease ends?
- Can I buy the car?
- Can I return the car early?
- I’ve leased a car but don’t like the situation
- What is the BVLRA?
But, first up here’s how car leasing compares with other forms of financing a car.
What is car leasing?
By leasing a car, you’re essentially renting it for a long period, typically two to four years but some lease providers offer shorter and longer terms. When the lease ends, the car goes back to the provider. You may see the term PCH. This stands for Personal Contract Hire and is simply another name for leasing. At no point in the process do you actually own the car and there isn’t a ‘balloon payment’ that allows you to buy the car outright at the end of the lease, as is the case with PCP deals.
Do I pay monthly?
Just as you would if you were to buy a car on finance, you’ll need to make a series of regular monthly payments over the course of the agreement when you lease a car. How much you pay will, of course, vary depending on the car and how long you want to lease it for.
When leasing a car, you’ll also need to make something called an ‘initial payment’. In essence, this is an up-front amount of money that you’ll need to put forward when you decide to lease a car, and this will generally be the equivalent of the first few months of leasing payments. As a rule of thumb, the more money you’re able to spend on an initial deposit, the lower your monthly payments will be.
When you’re looking at leasing deals, you’ll see them described as ‘3 + 23’, ‘6 + 35’, or something similar. This tells you the size of the initial payment and the number of subsequent monthly payments. So, a 3 + 23 deal is an initial payment equivalent to three monthly payments, followed by 23 monthly payments. A 6 + 35 deal is an initial payment equivalent to six monthly payments, followed by 35 monthly payments.
It’s important that you don’t mistake the initial payment for being the same as a deposit for, say, a rented property. With car leasing, you don’t get the money you put forward as an initial payment when the leasing agreement comes to an end. Instead, the initial payment is used only to pay for a part of the overall lease cost.
Do I own the car?
No. Throughout the lease, the car remains the property of the provider. However, as the car’s primary user your name will appear on the registration document (V5C). When the lease ends, the car is returned to the provider.
Is mileage limited?
Yes. When ordering the car, you’ll specify your annual mileage which is factored into the monthly payments. The more miles you do, the bigger the payments will be.
What cars are available to lease?
A wide variety of cars are available to lease, from an equally broad selection of car companies. Therefore, you should be able to find a lease deal for the ideal car for you – though the selection of cars may be limited, depending on the provider.
That’s not the case with carwow, though, as you can pick pretty much anything from a Peugeot to a Porsche, or a Mazda to a Maserati. You can check out some of our lease deals here.
While this isn’t always the case, leased cars have often already been specified by the provider, so you may not be able to have the car in your ideal specification. Many providers tend to specify their cars with decent amounts of equipment and creature comforts, though, so they should still have some appeal even if they don’t have your preferred colour.
Will the car be delivered to my door?
Yes. In fact, so long as you’re there to sign for it, you can have the car delivered pretty much anywhere. Different lease providers will quote different delivery times but, in most cases, you shouldn’t have to wait more than two to three weeks.
What about road tax?
Whether or not the car will be taxed depends on the lease provider. The cost may be factored into your payments, or it may be your responsibility. It should be clear in the terms of the lease agreement what the situation is but if it isn’t, ask the provider.
What about car servicing?
Many lease providers offer maintenance packages for an extra fee on top of the monthly payments. If you choose to have one, you simply inform the provider that the car needs servicing and they’ll arrange for it to be serviced at a convenient time. It may even be collected and delivered back, so you never have to go to the dealer yourself!
If you don’t pay for a maintenance package, you’ll have to arrange and pay for servicing yourself. The provider will insist that you use a manufacturer-approved garage.
What about the MOT?
Cars don’t need an MOT until they’re three years old. So, if your lease is less than three years, the car won’t need one. But if the lease is more than three years, it will. In that case, check with the provider to find out if you’re responsible for arranging and paying for the MOT.
If your lease is for three years exactly, check the car’s registration date on the V5C. It’s likely that the car was registered a short time before it was delivered to you and will, therefore, need an MOT before it goes back to the provider, even if there’s only a couple of days in it.
What about insurance?
You should expect to arrange your own insurance cover. Make sure you inform your insurer that the car is leased and which provider it’s leased from.
Is my leased car covered by the manufacturer’s warranty?
Yes. If the car develops any faults, contact the lease provider and they should arrange for the car to be looked at by a manufacturer-approved garage. If the fault’s covered by the warranty, the car will be repaired and returned to you. Faults that the manufacturer refuses to fix under warranty will be the result of neglect or misuse. In those cases, it’ll likely fall to you, as the car’s user, to pay for repairs.
Consumables such as tyres and brakes aren’t covered by a warranty, so you’ll have to pay for any replacements.
What if I crash my leased car?
Always inform the lease provider if the car suffers damage of any sort and claim for the damage through your insurer as normal. It could be that the provider wants to coordinate with your insurer to make sure the car is repaired to an acceptable standard, but you shouldn’t be involved in the process. It may cause delays, though.
If no third party is deemed to be at fault for the damage, it’s likely you’ll have to pay a penalty charge to the provider. This, in effect, covers the reduction in the car’s used value that has been subject to an insurance claim causes.
What happens when the lease ends?
The lease provider will arrange for the car to be collected on the day the lease expires at a convenient time. Make sure all the documentation is in the car. It’s helpful if you clean it as well.
The person collecting the car will inspect it for damage and faults, check the documents and make sure you haven’t exceeded the mileage limit. If there are any issues, you could be charged a penalty fee. If you wish to dispute the penalty, inform the person collecting the car and/or the provider. If you’re disputing that the car is damaged or faulty, take pictures of the areas in question to back up your case.
Otherwise, there’ll be some paperwork to do, you hand the keys over and your responsibility for the car ends.
Can I buy the car?
Lease providers don’t routinely offer the opportunity to buy the car – there’s no equivalent of the ‘balloon payment’ on a PCP deal. Indeed, the provider itself has probably leased the car from a manufacturer or dealer and it’ll ultimately be returned to them.
But there’s no harm in asking if you do want to buy the car. The provider may be able to sort it out for you.
Can I return the car early?
If you can no longer afford your lease, the provider should allow you to terminate it early. Or, if there’s been a change in circumstances that mean you need a different car, the provider should be able to sort it out for you. In either case, there’ll be extra fees to pay.
I’ve leased a car but don’t like the situation
If you have any issues with your leased car, lease agreement, or the provider, you should contact the provider first. If they can’t or won’t resolve the situation contact the British Vehicle Rental & Leasing Association (BVRLA), which offers a dispute resolution service.
If a matter involving the lease agreement can’t be resolved by the provider or the BVRLA, contact the Financial Ombudsman.
What is the BVLRA?
The British Vehicle Rental and Leasing Association represents car lease providers operating in the UK. The BVLRA enforces a strict code of practice, so make sure any provider you’re thinking of using is a member. There’s a directory of members on the BVLRA website.
Car leasing on carwow
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