Car leasing: What you need to know

It can be hard to get honest and transparent figures and explanations about finance and car leasing products. Have you ever asked why? It’s because most of the automotive media use press fleet loan vehicles for their reviews, articles – and even as their main vehicle! It’s also because companies can be very protective of their data.

But that’s no use to customers. You obviously want to ask questions about payment, terms, deposits and so on. So we’ve written the article below to explain some of the most crucial things you need to know, topic by topic, about leasing a car.  

In the article below, we are quoting a mixture of our data and broader industry statistics from the Society of Motor Manufacturers and Traders (SMMT).

What is the average monthly payment for a leased car? 

Car leasing usually costs anywhere from £100 – £1,000 per month. At Rivervale, our average monthly payment is £350. The five primary factors which affect your monthly payment are: 

• The car you choose 
• Your initial rental payment 
• The car’s predicted depreciation 
• Your chosen mileage allowance 
• The length of lease

Your initial rental payment is paid as your first month’s rent on the car. More on this below, but pay more as your initial fee and pay less each month. You can pay anywhere from 1 – 12 months’ worth of rental upfront.

The car’s predicted depreciation is set upfront with leasing. Where your sales price might be affected by factors outside of your control with purchase and selling (for example, new emissions laws, model faults, new models or industry-wide updates), leasing guarantees the depreciation sum from the start of your rental.

The higher mileage you choose, the more the car depreciates in value too. That’s why your deal will cost more if you choose a higher mileage level.

How does average monthly payment vary for petrol cars vs electric cars? 

This is a difficult question to answer, as electric vehicles (EVs) are still very new to the leasing market. 

However, leasing an EV is usually comparable to leasing a petrol or diesel car. It’s worth considering this, as EVs usually come with a higher price tag than internal combustion engine (ICE) cars – so leasing makes them comparably cheaper. Bear in mind with leasing an EV, too, that you can still benefit from the tax benefits, government grants and lower running costs of driving an electric car, even though you haven’t purchased it.

The government is offering grants to help you install home charge points. There is a plug-in car grant discount of up to £2,500 for fully electric cars (which your provider will take into account on your lease price). Plus, company car drivers can benefit from extremely low Benefit in Kind (BIK) tax rates.

Remember that fuel is your additional cost on the lease, too. It isn’t included in your monthly fee. So when you’re considering whether to opt for an ICE or EV, make sure to factor fuel costs into account. A full electric charge can cost as little as £8, whereas a full tank of fuel is more like £50.

What is the most popular term? 

At Rivervale, our most popular lease term is 36 months. There is always a limit to how long you can choose to lease a car, but you can usually choose to lease for 24, 36 or 48 months. Two years is usually the shortest lease length because the lease firm is the vehicle’s owner, and they lose around 40% of the vehicle’s value in the first year of it being driven – so average monthly fees over two years allow some of this to be recouped. 

Some providers are even allowing contract terms of as little as 3, 6, 9 and 12 months to outprice the ‘hire’ option for those needing short term access to vehicles. Different contract lengths will better suit different drivers. Longer leases usually equate to a lower monthly rental. 

With two- to three-year leases, the customer reaps all the benefits of the manufacturer’s warranty, too (as a standard warranty covers three years or 60,000 miles, whichever is reached first). Any mechanical or electric faults (which weren’t caused by driver error) are therefore covered for the whole warranty, which is another weight off a driver’s shoulders. A car less than three years old doesn’t need an MOT either!

What is the most common level of upfront payment? 

Our most common level of upfront payment is for 6-9 months, but you can pick as little as or as many as 12. Upfront payments are the initial rental payment on your car and come as your first month’s rental. The more you pay upfront, the cheaper your monthly payments work out.

What is the most common mileage specified by customers? 

Our customers most often specify a mileage of 10,000 miles per year. Why do leasing companies cap your car’s mileage? Because mileage equates to depreciation. The more miles a car has done, the less it’s worth. If you request a higher mileage, you’ll therefore be paying more due to the depreciation undertaking these miles causes to the car’s value.

Most lease deals offer between 10,000 – 15,000 miles per annum, but you can get cheap deals for lower mileage allowances. Be aware, though, that an excess mileage charge will be put in place if you exceed your annual mileage limit.

What about servicing and maintaining the vehicle?

One of the key benefits available when leasing a car is being able to choose a Funder Maintained lease option. This would cover the costs associated with all manufacturer routine maintenance, servicing and replacement tyres. The peace of mind of no unexpected bills is certainly something to favour.

If, however, you are comfortable managing the routine servicing yourself, you can opt for a Customer Maintained option where you will be responsible for ensuring the car is maintained according to the manufacturers routine with your chosen garage/service provider and pay for the maintenance as and when it’s required.

What happens at the end of the agreement?

One of the reasons many people opt for a leasing agreement is that when it ends you simply hand the car back to the finance company. It’s important to point out, however, that the vehicle must be returned in what’s known as Fair Wear and Tear condition. Every funder uses this guideline to assess the vehicle on return. If any damage falls outside of this guideline you will be charged for repairs.

How have any of those factors changed in recent years? 

The uncertain climate caused by Covid-19 certainly caused car leasing companies to see fewer enquiries, as potential customers felt less sure in their employment prospects and in their need to travel. Existing customers also had to explore payment breaks or early lease vehicle returns – so it has been an unusual period.

In terms of factors affecting the customers themselves, the average mileage requested has reduced since Covid, and across the industry, there has been a move towards higher initial payments, to reduce anxiety about big monthly bills.

Also, with hiatuses and delays to manufacture, there is a bit of a backlog in the supply of new vehicles. That has led to some customers looking to extend their current lease until their new lease becomes available. Get in touch with Rivervale if you want to discuss new vehicle leases, or visit our car leasing website if you have more questions about whether car leasing is the right option for you.

• More car leasing information and advice at The Car Expert