If you tend to change your car every three to four years, and you prefer new cars to used cars, leasing is often the most cost-effective way to run it. Many people don’t understand how leasing works, so here’s our simple guide. If you’re looking for more information, we have an entire car leasing hub that can provide you with plenty of details.
If you’re a private customer leasing a car, the type of product is called personal contract hire (PCH). This is different to a personal contract purchase (PCP), although customers often tend to treat them in exactly the same way.
In most cases, PCH works out to be a bit cheaper than PCP on a given new car. It will vary, however, and it depends on the car and your circumstances.
Leasing is usually confined to new cars, although some leasing companies do offer a limited selection of used cars. It is usually managed through dedicated brokers, rather than through regular dealer showrooms.
You might also like: Your 3-minute guide to PCP car finance
How does personal car leasing work?
We cover this in a lot more detail in our dedicated PCH guide, but here’s a quick summary:
Leasing is simply a long-term car rental. You pay an upfront amount, which is often several thousand pounds although it can be much less, followed by regular monthly payments for three or four years. At the end of the lease period, you give the car back to the leasing company.
The car belongs to the leasing company at all times, and you’re simply paying a monthly fee for exclusive use of the vehicle. You’ll have a mileage allowance that you need to stick to – if you hand the car back and you’ve done more miles than allowed in your contract, you’ll have to pay a penalty.
You are responsible for keeping the car in good condition. Wear and tear is acceptable, but any damage beyond that is your responsibility.
You have to pay for car insurance, and you need to make sure that the car is serviced correctly and on time. Some leasing companies will have packages that include insurance and/or servicing, but it’s often cheaper to manage it yourself. If you’re comparing offers from different leasing brokers, always look at what’s included and what’s not – it can make a large difference to your total cost over four years.
Is leasing cheaper than PCP finance?
If you’re looking online, you’ll probably find that the monthly payments for PCH are cheaper than for PCP on the same car. Why is that?
The secret is the starting price of the car. If you walk into a showroom to buy a new car, you’re going to pay full price or pretty close to it – even if there are advertised offers on that car. Leasing companies, however, usually pay much less for the same vehicle. Sometimes they’ll get discounts of up to 40% on new cars, which is way beyond anything private customers get.
This is simply because they’re buying thousands of cars every year and you’re buying one car every four years. If the leasing company is getting a massive discount on the purchase price, they can afford to pass on significant savings to you and still make a tidy profit.
Car leasing pros and cons
Pros:
- Your monthly payments are usually lower than other types of finance for a given car
- You can bundle servicing and insurance costs into your lease (for extra cost, obviously)
- Fixed monthly payments for the life of the contract
- You give the car back at the end, so no hassle in terms of selling or part-exchanging the car
Cons:
- You’re simply renting a car rather than paying off a loan, so you never have the opportunity to own the car
- Strict limitations on mileage and vehicle condition, with hefty penalty fees
- No early exit provision, so if you have to cancel your lease early it could cost you thousands of pounds
- Best deals are always on what’s available rather than what you want
- Mostly limited to brand new vehicles, with very few options for used car leasing
Summary
Personal contract hire has been growing in popularity for several years now. If you have previously bought new cars with PCP finance and you want to change your vehicle every few years with no intention of keeping it, it’s certainly worth looking at leasing instead.
To get the best deals on car leasing, you need to select a car from what’s available. That means you won’t necessarily have as much choice on colour and specification. You can walk into a showroom, choose a car to your perfect specification with all the options you want and get a personal leasing quote from the dealer, but it probably won’t be any cheaper than a PCP.
If you do want to take a personal lease for your next car, make sure you understand your financial commitments, both up-front and throughout the course of the agreement.
More car leasing information and advice here:
