1. MoneySavingExpert.com
  2. Borrowing
  3. Car Finance

In this guide

Tip Email

FREE Weekly MoneySaving email 

For all the latest deals, guides and loopholes simply sign up today - it’s spam free!

Show more
Show less
FAQs Privacy Past Emails Unsubscribe
FAQs Privacy Past Emails Unsubscribe
cheap car leasing

Cheap Car Leasing

Find the cheapest long-term car rentals

Harriet Meyer | Edited by Johanna Noble
Updated 1 September 2020

A brand new car is never MoneySaving, but if your heart is set on one and are comfortable renting it for a set period, then car leasing – also known as personal contract hire (PCH) – is worth considering. Here we've broken down the basics so you can work out whether leasing is right for you.
 

Not the car finance option you were looking for? Check these out...

Personal car loan | Hire purchase (HP) | Personal Contract Purchase (PCP)

illustration

What is car leasing?

Leasing a car is no different to leasing – or renting – anything else. If you rent a house or flat, you pay a deposit, then you get the use of it for an agreed period during which you pay a set amount each month. Once the contract ends, the property reverts back to the landlord.

And it's the same with car leasing. After agreeing how many miles you will drive each year, you'll pay a fixed monthly amount, often with a larger initial payment to act as the deposit. Thankfully most deals display this very clearly. For example, a 24 month contract listed as 6+23 would mean the first monthly payment is six times the usual amount (for a £150/mth deal, you'd pay £900 upfront in the first month followed by 23 monthly payments of £150).

You'll never own the car (or get the option to buy it) and at the end of the deal, the car goes back to the finance company. It's inspected and, just like with a property, you'll need to pay out if you've damaged anything (above normal wear and tear). You'll also face extra charges if you've exceeded the agreed annual mileage, usually for every mile you've gone over. 

How does leasing work?

how leasing works

You'll usually lease a car from a finance company or sometimes direct from a manufacturer. The deal they offer, and how much you pay, is then based on the make and model you choose, how many miles you will do and how long you will keep the car.

The car remains the property of the finance company throughout, but as brand new cars quickly depreciate in value (accelerated further with time and higher than average mileage), when you hand it back it will be worth much less. Most leasing companies sell on the car when it's returned so the car leasing pricing model works by covering its loss in depreciation (the price it bought the car for minus what it predicts it can sell it for after the agreed term), plus a margin for profit.

Yet as lease companies usually buy multiple cars at a time, they're often able to pay far less for a brand new car than individuals, so the amount of depreciation is usually lower. This can mean leasing deals for certain models can be competitive, offering a cheap way to get behind the wheel of a new car. 

How to choose a lease deal

Car leasing contracts typically run for two to four years though you are able to get slightly longer or shorter. It's worth playing around with this as it changes the cost of the deal and there's no set rule for which period is cheaper. You'll also need to determine a mileage limit, though here more miles will almost always return a more costly deal.

You can search hundreds of lease deals online by entering the specific model you're after or by putting in your budget, preferred contract length or type of car you're after, such as SUV or a convertible. 

The trick to choosing the best value deal is to work out the total cost that you'll pay over the entire contract, including any upfront admin or processing fee that is sometimes charged. To do this simply multiply the monthly payment by the number of months in the deal, plus the larger deposit. So for the 6+23 £150/mth example detailed earlier, with a £199 processing fee, you'd pay a total of £4,549 over two years.

You can then compare this to other types of finance. Equally if this is higher than the amount you'd expect to lose in depreciation if you were able to buy the car yourself outright and sell it, then it's likely not a great value deal - and vice versa. It's also worth checking how much you'd pay if you exceeded the agreed mileage limit, so you can factor in a safety net.

Quick question

  • How can I estimate my mileage?

    What mileage you need to put down really depends on how much you think you will be driving the car. Will you just use it as a runaround on the weekend or will you be driving to work? Let's take an example...

    Anne works Monday to Friday and wants to drive to work everyday. She works 10 miles away – this means she will be doing at least 100 miles per week. Taking into account four weeks' holiday a year, she will be doing 4,800 miles a year just driving to work. And that's before taking into account weekend car journeys and any holiday driving.

    So, for Anne, it's probably worth estimating that in an average year she'd do 6,000-7,000 miles. It's always best to have some leeway in your estimate.

what happens at the end of lease

What happens at the end of the lease?

Once your agreed contract term has run out, you'd usually arrange for the car to be collected and returned. However you may be able to extend the lease – it's worth contacting the finance company a few months before the end of the deal to check it will allow this, and whether it'll offer a discount on the monthly payment as it's now an older car.

At the point of returning the car, the finance company will arrange a time for it to collected and inspected. Providing it's in good condition with no damage (aside from normal wear and tear) and within the agreed mileage, then there'll be nothing else to pay. 

If there's damage then you'll receive a bill to cover the repair charges. Once the car has been returned you no longer have any option to get other quotes, so it's worth getting any major damage repaired before the inspection, enabling you to shop around for the repair costs.

Similarly if you've gone over the mileage limit, then you'll need to pay a charge, which is usually around 10p per mile, though always check how much this is before taking out the lease.

Is leasing the right option for me?

Here are the big advantages and disadvantages of leasing, to help you work out if leasing is for you. Make sure you can live with the disadvantages. If you can't, then it's likely that leasing isn't for you, and you might want to look at the other finance options.

Pros

Often the lowest upfront & monthly costs for a brand new car (especially upmarket models).

Cover from the manufacturer's warranty for the term of the deal.

Road tax and breakdown cover included – sometimes, servicing too.

No worries about how much value your car will lose over the term – it's not your problem.

Simple. You pay monthly then hand your car back to the finance company at the end of the contract.

Cons

You won't own the car – you're just the driver for the term of the deal.

Monthly payments may be low, but you don't get the cash when the car's finally sold.

Limited mileage. Drive over the limit, and you'll pay for it. Excess mileage charges are usually around 10p/mile.

You could be stung for high charges if you damage the car.

If the car's written off, and the insurer's value is less than the leasing company's, you may be liable for the difference.

Is leasing cheaper than buying?

As cars almost always depreciate, it's never a good investment. Yet if you buy a car you'll at least be able to cash in its value when you want to change it. It's different with leasing as you know from the outset that you'll get nothing back at the end of the deal. The key question is therefore whether the amount you'd pay over the duration of the lease is higher or lower than the amount you'd lose by owning the car and reselling it over the same period (so the price you'd buy it for plus any interest costs if you needed to borrow, minus the price you would expect to sell it for).

If it's lower, then leasing would be cheaper than buying, plus you won't have cash tied up in the car as you'll just need to keep up with monthly payments. If it's higher then you would be better off buying the car. 

Will you need to pay extra for servicing?

Most leasing providers won't include servicing and maintenance on the car, so you'll need to factor this in on top of your monthly payments, car insurance and fuel costs. 

It's likely you'll be offered the option of adding a maintenance package to the deal, which you'll pay for monthly. Policies vary, but will usually cover annual servicing and replacement tyres. Before signing up, get an idea of how much it would cost to pay for the service yourself so you can make a fair comparison, especially as new cars typically don't need servicing in the first year. Also bear in mind that most faults will be covered under the manufacturer's warranty anyway.

Different car finance options compared

Broadly speaking, there are six different ways to pay for a car. The table has the key differences at a glance.

Finance type Typical length of agreement? Initial deposit required? Who owns the car? Mileage restrictions?
None – cash savings N/A N/A You No
0% credit card Up to 20 months No You (though you'll still need to repay the debt) No
Personal loan 1-7 years No You (though you'll still need to repay the debt) No
Personal Contract Purchase 1-5 years Yes (i) The finance company, unless an optional final balloon payment is made Yes
Hire purchase 1-5 years Yes (i) The finance company, until the final repayment is made No
Leasing/Personal Contract Hire 1-4 years Yes (i) The finance company, at all times Yes

(i) In most circumstances, though sometimes you can get a deposit contribution from the dealer or structure a lease deal to pay nothing upfront.

So which wins?

Sadly, there is no one-size fits all answer to this (as much hangs on whether you want to own the car and other factors). However, we've included more information on each option below, to help work out which is right for you.

  • • Cash savings – the cheapest option for most cars

    The outright winner if you want to fully own the car from day one, as you'll avoid paying any interest and be debt-free. Though if you're looking to buy a brand new car – which on average loses about 40% of its value by the end of the first year – and are likely to change it in the next few years, it's worth considering a leasing or personal contract purchase deal below as the overall cost of ownership can work out cheaper.

    • Important. Spending £100-£30,000? Pay just a penny on a credit card for protection.

      Pay something towards your car on a credit card, and you get powerful extra protection if something goes wrong down the line. This is because you're then covered by Section 75.

      Provided that the total cost of the car you're buying is between £100 and £30,000, paying anything towards it by credit card means the card company (or finance company in some cases) is equally liable along with the dealer if things go wrong.

      However, this isn't always straightforward. Some dealers don't accept credit cards and some may only allow you to pay a limited amount by card. So figure out how important this is, and ask your chosen dealer if it can accept cards before deciding how to pay.

  • • 0% spending credit card – no interest if you can get a big enough credit limit (and the dealer accepts cards)

    Depending on the price of your new car, a 0% spending credit card could be the next cheapest way to borrow. Like paying in cash, you'll own the car outright, plus you'd be covered by Section 75 protection. However, you'd need to check whether the car dealer accepts payment by credit card, as not all do.

    Sadly you usually won't know what credit limit you'd get before applying, and you should budget to pay it off before the 0% period ends as the interest rate rockets. The current longest offers 20 months at 0% – see our 0% Spending Cards guide for more information.

  • • Personal loan – usually cheapest if you need to borrow and want to own the car outright

    This usually allows you to borrow higher amounts than a 0% credit card would offer, though you'll pay interest. However, repayments will be structured to clear the debt at the end of the term, which is usually between one and five years.

    Once approved you'll receive the funds into your bank account, which you can then use to buy the car, so you'll own it outright. See our Cheap Loans guide for best buys and full help.

    • Important. Spending £100-£30,000? Pay just a penny on a credit card for protection.

      Pay something towards your car on a credit card, and you get powerful extra protection if something goes wrong down the line. This is because you're then covered by Section 75.

      Provided that the total cost of the car you're buying is between £100 and £30,000, paying anything towards it by credit card means the card company (or finance company in some cases) is equally liable along with the dealer if things go wrong.

      However, this isn't always straightforward. Some dealers don't accept credit cards and some may only allow you to pay a limited amount by card. So figure out how important this is, and ask your chosen dealer if it can accept cards before deciding how to pay.

  • • Personal Contract Purchase (PCP) – can be good if you want to get a new car every few years, otherwise a hefty final payment and often more expensive overall than a loan

    A popular way to get a new car, especially if you frequently change car and want to pay for it monthly. It's basically a loan, though usually cheaper each month as you won't be paying off the full value of the car. You also won't own it at the end, unless you choose to.

    You set a term for the agreement and pay a deposit (eg, a three-year term with a £2,000 deposit). The finance company then provides a final value that the car will be worth at the end of the agreement (eg, £6,000). These are then subtracted from the cost of the car to work out how much the loan will be (eg, you'd owe £12,000 over three years for a £20,000 car).

    There's usually a mileage allowance (eg, 8,000 miles a year), but provided you stick to that and don't damage the car, you can return it and walk away at the end of the agreement. Alternatively, you have the option to pay the final value to own it, also known as a balloon payment.

    As the dealer will be making money from the finance deal, you may find it offers larger discounts or contributions to the deposit on new cars. For used cars, it may mean you can haggle more off the sale price. Always be careful and make sure to calculate the total cost you'll need to repay after all interest has been added. This will then show the 'true' value of the discount.

  • • Hire purchase (HP) – an option to consider if you're struggling to get a cheaper loan, though the lender owns the car until you fully repay

    This works in a similar way to a loan – as you're borrowing and paying off the full cost of the car – though you won't own it until you've made the final payment. Instead the car is owned by the finance company as it uses it as security against the loan (like a mortgage), so if you fail to pay it can seize the car.

    This can mean it's easier to get than normal loans, though you'll usually need to pay a deposit (often 10% or more of the car's price). You'll therefore need to consider how to fund that. However, if you're buying a brand new car from a dealer, it's worth checking if it offers a promotional contribution towards this.

    As the dealer will be making money from the finance deal, you may find it offers larger discounts or contributions to the deposit on new cars. For used cars, it may mean you can haggle more off the sale price. Always be careful and make sure to calculate the total cost you'll need to repay after all interest has been added. This will then show the 'true' value of the discount.

    See our Hire Purchase guide for full information.

  • • Car leasing/Personal Contract Hire (PCH) – low monthly rental payments, though you'll never own the car (or have the option to)

    This is a way to get a brand new car for a monthly payment, though this is essentially a long-term rental, so you'll never own the car – or ever have the option to buy it.

    Instead you'll pay an initial deposit followed by a monthly amount for the duration of the contract, which is usually over one to four years. As with PCP, you'll need to choose a mileage allowance (eg, 8,000 miles a year) and you're responsible for its upkeep.

    At the end of the agreement, you simply return the car (though you could be charged if you've exceeded the mileage or damaged the car).

    To help find a cheap lease deal, there are a host of lease comparison sites, such as Leasing.com and Lease Loco, which scan hundreds of offers from dealers across the UK. See our Car Leasing guide for full information.

Compare and find a lease deal

To help find a cheap lease deal, there are a host of comparison sites, which scan hundreds of offers from dealers and brokers across the UK. There are two types of deal – stock cars, where the car is already in the UK and usually delivered quickly within a few weeks (and cannot be customised) and factory orders, where there's often a longer few months wait as the car is yet to be manufactured, usually if you're looking to change spec or add any optional extras, such as a panoramic roof.

Don't be put off if the cheapest dealer is miles away as it will arrange delivery to your home address for free, and you'll be able to take the car to any franchised dealership for servicing or if anything goes wrong. If you'd still rather deal with a local dealer then it's worth taking the best quote along to see if it will match or beat it. 

Here are our favourite comparison sites due to their ease of use, though combine them for the best range. It's worth playing around with the initial rental amount and the contract length to see how that changes the price, as some deals are only available on certain terms.

Leasing.com

In addition to searching by make and model, you're able to see all car deals for your budget if you're not set on which car to go for. There's then a comprehensive number of filters, plus you're able to sort by total cost for true ease of comparison, which is why it's top of our list. It also has a nifty value rating based on this total cost of the lease vs the list price of the car and length of the deal. This can be handy to identify standout special deals, but pay more attention to how much you'd need to pay first. 

Autoleasecompare.com

Again this lets you sort by total cost, though it displays the equivalent monthly cost rather than the total figure that we find easier to compare. It's still handy though as this figure represents how much you are effectively paying for the car per month, when factoring in the upfront cost, and can simply be multiplied by the contract length to get the full cost of the deal.

Leaseloco.com

Another easy to use site with similar features as above, though you're unable to search by total cost. Instead you can only sort by monthly cost or value (which is a score out of 100, using a similar calculation as leasing.com above) which makes it trickier to understand the true cost, as you need to manually add the initial payment to get this figure. It also means that a deal with a low monthly cost with a large initial payment (so higher total cost) could be ranked above a cheaper deal overall, but with higher monthly payments.

Once you've found a deal you're happy with, you can contact the lease provider through the comparison site, though it's also worth checking to see if it's any cheaper by going direct. You can usually just search for your chosen provider's own site, then simply check the deal there.

You usually can't do the whole process online, so you'll often need to send an enquiry on your chosen car, or ask for a call back. They will then take your details, run a credit check and take payment for any processing fee that's applicable. You'll then be notified once the vehicle is ready and be sent registration details of the car so you can sort comprehensive car insurance. You'll then just need to arrange a convenient delivery date. 

When the car is delivered, make sure to take your time in inspecting it inside and out, and make sure it is free from damage or marks. If you find anything, make sure it's noted down before signing to accept it, otherwise you'd be responsible for it when returning the car.

Car leasing Q&A

  • How much will monthly payments be?

    You'll pay an initial deposit, then a set amount every month for a set period, usually two to four years. The higher the deposit you opt to pay, the lower the monthly payments will be, though the exact values vary significantly based on the make and model you choose.

    Roughly speaking, for an entry level small hatch, lease deals start from around £120/mth, with a deposit six to nine times that (so £720-£1,080) over a four year deal. Though for expensive, premium models can go into the £1,000s.

    Whichever model you choose, the key figure for comparison is the total cost, as this factors in the initial payment. A low monthly payment may look appealing, but if you then need to pay a hefty amount upfront, you could find yourself shelling out more overall.

  • How long does it take to lease a car?

    Once you've chosen your lease deal (don't rush this as researching the correct deal can take time), your order will usually be processed and all credit checks and paperwork completed in a few days. You then just need to wait for the car to be available, which varies depending on the type of lease deal you choose. 

    • Stock cars - can be delivered in a few weeks. This is where the deal is marked as 'in stock'. This usually means the car is already built (so cannot be customised) and in the UK, so can be delivered quickly once the order has been made and processed.
    • Factory orders - can take a few months to be delivered. This is where the car is yet to be manufactured, so has to be ordered. This usually means you can add any optional extras, though this can significantly increase the cost of the lease. 

    Before signing up to any deal, always check the estimated delivery date for the model you're after. If you opt for a factory order, be mindful that the date may change as it's usually not guaranteed.

  • Is car leasing available with insurance?

    The leasing company will provide the car, but you will be responsible for taking out car insurance. It's usually a requirement of the lease to have comprehensive cover in place, and you'll usually need to provide a copy of your insurance certificate before taking delivery.

    As soon as you receive the registration details and have a confirmed delivery date, it's a good idea to get a quote as soon as possible as policies tend to be more expensive if you take them out a day before it's required, than say three weeks before. See our Car Insurance guide for full help and information.

  • What happens if I miss a payment?

    If you find you're not able to make repayments, always contact the lease provider - ideally before the next payment is due. If it knows you're struggling, it should help you by offering an alternative and affordable repayment plan.

    If you miss a payment, it's likely the lender will contact you to see what's wrong. If you keep missing payments, they'll mark you as in default. Once this happens, they'll usually take back the car quite quickly, as to leave it with you while they chase payments risks the car depreciating in value.

    As well as taking the car, if you fail to keep up repayments, you'd get a default mark on your credit file, which could affect your ability to get a mortgage or other credit. See our Credit Scores guide for more info.

  • What effect will getting a lease deal have on my credit rating?

    When you apply, the lender will do a credit check to decide whether to lend to you, and this check will appear on your file as an application for credit.

    Credit checks for leasing aren't usually as stringent as those for personal loans. This is because the finance is secured on the car – if you don't pay, they can just come and repossess the car, whereas for loans there's no security, so they'd need to chase you through the courts.

    Pay the finance off on time each month, and it'll help your credit record. Fail to pay on time, and you'll be marked as in default, which could affect your ability to get a mortgage or other credit. See our Credit Scores guide for more info.

  • What costs might I face at the end of the deal?

    At the end of the contract there are no costs to return the car. The only costs you may face are any excess mileage fees and/or fees for damage to the vehicle that's beyond expected wear and tear.

Share this guide
MSE Forum

Have your say in our forum!

Cheap car leasing

Spotted out of date info/broken links? Email: brokenlink@moneysavingexpert.com

MSE Tools & Calculators

Clever ways to calculate your finances 

Cheap Energy Club

We ensure you're on the cheapest tariff

Tool

Loans Eligibility

All of the top unsecured personal loans

Tool

Credit Card Eligibility

Tools for different credit card types & purchases

Tool

Mortgage best buys

Compares thousands of mortgages

Tool

Mortgage Calculator

Eight calcs for all your mortgage sums

Tool

Free complaints tool

Resolver - the automated complaints system

Tool
Tools and Calculators
What the * means above

If a link has an * by it, that means it is an affiliated link and therefore it helps MoneySavingExpert stay free to use, as it is tracked to us. If you go through it, it can sometimes result in a payment or benefit to the site. It's worth noting this means the third party used may be named on any credit agreements.

You shouldn’t notice any difference and the link will never negatively impact the product. Plus the editorial line (the things we write) is NEVER impacted by these links. We aim to look at all available products. If it isn't possible to get an affiliate link for the top deal, it is still included in exactly the same way, just with a non-paying link. For more details, read How This Site Is Financed.

MoneySupermarket.com Financial Group Limited is authorised and regulated by the Financial Conduct Authority (FRN: 303190). The registered office address of both MoneySupermarket.com Group PLC and MoneySupermarket.com Financial Group Limited (registered in England No. 3157344) is MoneySupermarket House, St. David's Park, Ewloe, Chester, CH5 3UZ. MoneySavingExpert.com Limited is an appointed representative of MoneySupermarket.com Financial Group Limited.