Cheap car leasing
Find the cheapest long-term car rentals
A brand new car is never MoneySaving, but if your heart is set on one and you're comfortable renting it for a set period (without the chance to own it), then car leasing – also known as personal contract hire or PCH – is worth considering. Here we've broken down the basics so you can work out whether leasing is right for you.
What is car leasing?
Leasing a car is no different from leasing – or renting – anything else. For example, if you rent a house or flat, you pay a deposit, then you get to use it for an agreed period during which you pay a set amount every 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/month 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 – though normal wear and tear is usually accepted. You'll also face extra charges if you've exceeded the agreed annual mileage.
How does leasing work?
You'll usually lease a car from a finance company or sometimes direct from a manufacturer. Leasing used to be always arranged through a car dealership, but many leasing providers now operate online.
The deal they offer, and how much you pay, is 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 the car on after you return it, so the leasing pricing model works by charging you an amount that covers the loss in depreciation (that's the price it bought the car for, minus what it predicts it can sell the vehicle for after the agreed term). It'll add on a bit for profit too.
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.
Is leasing cheaper than buying?
As cars almost always depreciate, you could say they're never a good investment. But if you buy a car you'll at least be able to sell it and get some money back when you want to change it. It's different with leasing as you know from the outset that you'll be left with nothing 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 it to sell for).
If it's lower, 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.
Alternative types of car finance to consider
This guide focuses on leasing, though before you go on, do check these alternative types of car finance to assess if they'd suit you better.
Broadly speaking, there are six main ways to pay for a car. The table has the key differences at a glance, then we run through the alternatives to leasing in more detail, with links out to our other car finance guides where relevant.
|None – cash savings||N/A||N/A||You||No|
|0% credit card||Up to 22 months||No||You (though you'll still need to repay the debt)||No|
|Personal loan||Usually 1-7 years||No||You (though you'll still need to repay the debt)||No|
|Personal contract purchase||Usually 1-5 years||Yes (i)||The finance company, unless an optional final balloon payment is made||Yes|
|Hire purchase||Usually 1-5 years||Yes (i)||The finance company, until the final repayment is made, then you||No|
|Leasing/personal contract hire||Usually 1-4 years||Yes (i)||The finance company, at all times||Yes|
Sadly, there's no 'one-size-fits-all' answer to which wins (as much hangs on whether you want to own the car and other factors). However, we've included more information on each alternative to car leasing below, to help work out which is right for you.
- Cash savings – the cheapest option for most cars
The clear winner if you want to own the car fully from day one, as you'll avoid paying any interest or taking out debt. 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. With these, the overall cost of ownership can work out cheaper.
- 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.
Unfortunately you usually won't know what credit limit you'll get before applying, and you should budget to pay the debt off before the 0% period ends, as the interest rate rockets after then. The longest cards typically offer up to 22 months at 0% interest – 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 won't be at 0%, but may allow you to borrow more and over a longer period than you'd get on a credit card. 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.
Personal contract purchase (PCP) – can be good if you want to get a new car every few years, but it's often more expensive overall than a loan
This is 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. See our Cheap personal contract purchase guide for more information.
- Hire purchase (HP) – an option to consider if you're struggling to get a cheaper loan, though the lender owns the car until you've made all loan repayments
This works in a similar way to a loan – as you're borrowing and paying off the full cost of the car – though here 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 security can mean an HP deal will be 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.
Like with PCP above, 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 Cheap hire purchase guide for more information.
Car leasing need-to-knows
If you think car leasing is right for you, here are the need-to-knows to understand before opting for a new agreement.
1. You'll never own the car, and when the lease ends your only option is to hand it back (or possibly extend it)
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.
When you're returning the car, the finance company will arrange a time for it to be 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.
When the car is collected and inspected, any damage will usually be pointed out to you and recorded in a report. If there's damage beyond fair wear and tear (for example large dents, scratches or broken parts), you should 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, allowing you to do the repairs more cheaply.
Similarly, if you've gone over the agreed mileage limit, you'll need to pay a charge – usually about 10p per mile (check your exact charge per mile before signing the lease).
Avoid these charges by agreeing a sensible mileage upfront and taking good care of the car. Always request a copy of the dealer or finance company's fair wear and tear policy at the start of the agreement, so you know what fees to expect.
3. Though you won't own the car, you're usually responsible for insurance, parking/speeding tickets and general upkeep (eg, servicing)
The leasing company remains the legal owner and registered keeper at all times. But you'll still be responsible for any parking or speeding tickets as the leasing provider will just pass these on, sometimes with an admin fee on top.
You'll also be responsible for servicing costs and insuring the car, so factor these in on top of your monthly payment.
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 servicing costs separately, 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.
You'll usually need comprehensive car insurance (and provide proof)
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 the insurance is required (the cheapest time is about three weeks before). See our Car insurance guide for full help and information.
If you think you may need to end an agreement early, always check the fine print before you sign up, as not all leasing providers allow this.
Even if it does, it's usually a very expensive option as the leasing company will be trying to cover its potential losses.
The lease agreement is calculated to cover the loss in depreciation (the price the company buys the car for, minus what it predicts it can sell the vehicle for after).
As cars depreciate much faster in the first year of ownership, handing the vehicle back early often means it's already lost the majority of value, so is worth much less than the leasing company will accept.
So it will charge an 'early termination' fee, usually a lump sum – typically about 50% of your outstanding payments, though it varies by lease so always check. For example, to quit a two-year lease at £200/mth after one year, you'd need to pay £1,200. This is often in addition to any damage or excess-mileage charges.
When you apply, the lender will do a credit check to decide whether to lend to you, and this check will appear on your credit 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, the lender can just come and repossess the car, whereas for loans there's no security, so it'd need to chase you through the courts.
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, it'll mark you as in 'default'. Once this happens, it'll usually take back the car quite quickly, as to leave the vehicle with you while it chases payments risks the car's value depreciating even more.
As well as the company 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.
6. Pay the deposit with a credit card (even just 1p) for valuable protection – for cars worth up to £30,000
You don't need to pay every monthly payment on the card. Just put some of the deposit, even as little as 1p, 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 laws.
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.
If you need to borrow to pay for the deposit, a 0% spending card is the cheapest way as, done right, there's no interest. For full help and top picks, see Best 0% spending cards.
How do I compare car leasing deals?
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 is usually delivered within a few weeks (and cannot be customised).
- Factory orders, where there's often a few months' wait as the car is yet to be manufactured. This is best if you're looking to change the spec or add 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 use a local dealer then it's worth taking the best quote along to see if it will match or beat it.
You can search hundreds of lease deals online by entering a specific model or by putting in your budget, preferred contract length or type of car you're after, such as SUV or convertible. To help find the best deal, follow these pointers:
- Compare using the TOTAL COST over the entire contract. Don't be distracted by low monthly payments – this often disguises a large deposit. It's the total cost that matters. Multiply the monthly payment by the number of months in the deal, plus any larger deposit and fees. So for a 6+23 £150/mth deal with a £199 processing fee, you'd pay a total of £4,549 over two years (29 x £150 + £199).
You can then compare this against other lease deals over the same term or different types of finance. Plus, if this is higher than the amount you'd expect the car to lose in value if you bought and sold the car yourself, then it's likely not a great value deal – and vice versa.
- Play around with the contract length – some deals are only available on certain terms. There's no set rule for which period is cheaper (for example, we've seen two-year deals work out cheaper per year than four years).
- Be realistic with your expected mileage. Here, more miles will almost always return a more costly deal – though you need to set an allowance you can stick to or you'll just be stung with charges at the end.
Here are our top-pick comparison sites, chosen for their ease of use – it's best to combine them for the broadest range of deals.
What happens once I've found a deal?
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, and check the deal there.
You normally 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. The provider 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, take your time to inspect it inside and out, and make sure it is free from damage or marks. If you find anything, ensure it's noted down before signing to accept it, otherwise you'll be responsible for it when returning the car.
Want to complain about your car finance provider?
If your car finance provider has taken the wrong amount in payment, treated you unfairly or its service has been atrocious, you don't have to suffer in silence. It's always worth trying to call the lease company first to see if it can help, but if not...
Car leasing Q&A
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 hatchback, lease deals start from about £120/mth, with a deposit six to nine times that (so £720-£1,080) over a four-year deal. For expensive premium cars, monthly payments 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 need to pay a hefty amount upfront, you could find yourself shelling out more overall.
What mileage you need to put down really depends on how much you think you will drive 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 every day. She works 10 miles away – this means she will be doing at least 100 miles a 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 6,000-8,000 miles. It's always best to have some leeway in your estimate.
The leasing company will provide the car, but you'll be responsible for taking out car insurance. It's usually a requirement of the lease to have comprehensive cover in place, and you'll normally 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 they're required, than, say, three weeks before. See our Car insurance guide for full help and information.
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