How car leasing works

Car leasing is a way to drive around in a reasonably new car for a fixed monthly sum but without the burden of ownership. Here's more info.

Another way of looking at car leasing is as a long-term car rental.

Car leasing arrangements normally last between one and four years and your monthly payments will be mainly based on how much your leasing company expects the value of the vehicle to drop over the period of the lease, the interest rate for the finance and the initial deposit payment which is typically the equivalent of 3-9 months of your fixed payment which pretty much covers the broker and admin fees.

So that sums up the breakdown of your monthly bill, but how would you go about getting one?

  • To start with, have a look at which lease cars are available to suit your personal preference, budget on initial deposit and monthly cost and requirements such as mileage to reflect the usage of the car and length of contract.
  • Next, simply submit a no-obligation online enquiry form you can be contacted back and have someone talk you through the options in more detail.
  • Once you’re ready to proceed ahead with financial matters you be required to submit a more comprehensive finance application to be forwarded to the finance provider as a proposal to get a decision on your contract hire and if authorised you will be required to sign the order form to get your vehicle delivery date.

Now that’s the easy bit out of the way but what’s the confusing part is understanding the general types of personal car leasing options that are available. So, we have briefly summarised this below to help you understand it easier in the simplest way.

Lease with the option to buy

You might want to buy a vehicle outright but don’t have the money to do so immediately. Lease purchase could be your solution because this gives you the opportunity to buy the car and become its legal owner at the end of the leasing contract. To do this, you have to make a final payment at the end of the contract in addition to your deposit and monthly payments.

If you don’t want to buy the car at the end of the contract, you simply hand it back to the finance company.

Lease as contract hire

Contract hire can be easily understood as a low premium rental and it’s the most popular option among businesses because of the certainty it brings regarding payments. You take on a car for a set period of time and pay fixed monthly instalments. You never own the vehicle.

You will typically make a low initial payment equivalent of three to six monthly payments upfront and then have a set monthly payment for the rest of the term. Many people also pay an additional monthly fee for the contract hire company to reduce the initial payment and also tailor the package to include the maintenance and servicing of the vehicle.

Business car leasing for company cars

The majority of company cars are leased these days and there are good reasons for that. You’ll be driving a brand new car every two to four years and you can typically afford to drive a vehicle outside of your outright-purchase price range. With the car being new, the manufacturer’s warranty will normally cover the period of the lease, and maintenance costs can also be included. Also, with leasing companies buying thousands of vehicles from manufacturers, they can get a great deal and pass those savings on to you.

Related: 8 of the best electric cars for small business leasing

A business doesn’t have to tie up large sums of money in buying a fleet of vehicles and there are also tax advantages.

Personal car leasing for everyday use

We all know that a new car starts to lose its value the moment you drive it off the forecourt so many people these days opt to lease their car instead. This is where you use a car as if it was your own for an agreed contractual period. You make fixed monthly payments to a leasing company and when the contract expires you simply return the car. You never have to worry about resale value of the car.

Other advantages include a low initial deposit and the option to include maintenance packages so you don’t have to worry about the upkeep of the vehicle. You may also be able to have a more luxury car than you would be able to afford to buy.

The advice in this article was contributed by TFS Vehicle Leasing, part of the CAMS Group that are regulated by the Financial Conduct Authority.

See also: Car leasing – what is fair wear and tear?

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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