As living costs soar upwards and transport becomes more and more essential to daily life, leasing has become one of the more popular and cost-effective methods of vehicle usage in the past few years.
But, why is it so much cheaper to lease a car than it is to buy? How can I get the latest model Mercedes for less than a three-year-old Toyota? It seems implausible, but that’s the beauty of car leasing.
OSV has been helping car buyers find the perfect vehicle since 1997 so we know the ins and outs of car leasing and exactly what affects car leasing prices. in this article, we’re going to reveal what affects lease prices, and how you can get the best car for your money.
What Things Affect a Vehicle’s Lease Price
The answer is; a lot of things. There’s a whole host of influences that affect the pricing on lease cars and vans. However, we’ve narrowed down the main factors so you can see what is most likely to change the cost of your lease vehicle. It should be noted that this does not change the cost overall, but it does affect the monthly cost.
- The annual mileage
- Initial deposit amount
- Length of contract
- Type of lease
- The type of vehicle
- Credit rating
- When you order your car
- Any additional features
- Your choice of supplier
- If you need maintenance
- Residual value of the car
- Manufacturer targets
Obviously, we’re not just going to leave it there, let us go into a little bit more detail.
How Does Annual Mileage Affect Lease Price?
The less you drive your car, the less wear and tear there will be on the vehicle at the end, the more the dealer can sell it for once the lease is up.
Generally, this brings the monthly payments down as you’re less of a risk in terms of doing damage throughout the lease. By accurately calculating your annual mileage, you won’t have to pay for unnecessary miles. This is the easiest way to get the cost of your lease vehicle down.
However, if you go over your annual mileage, you will incur an excess mileage charge for every mile over your allowance. The cost of this varies depending on the manufacturer and model, but they usually range from between 6p to £1+VAT per mile.
You can increase your annual mileage halfway through your lease, but this isn’t always the cheapest option. Sometimes it is cheaper to pay the excess mileage charge at the end of your lease than pay for mileage you may or may not use.
Jeff drives between 20,000 miles a year and 22,000 miles a year. If he pays for a 25,000 allowance it will cost him £100 more a month (£1,200 a year). However, he decides to choose a 20,000-mile allowance and will pay the excess mileage charge at the end of the year. If he does 22,000 miles and has to pay 6p+VAT per mile he will only be paying £120 extra.*
*This is an extreme case. It’s unlikely to be such a huge difference in price, but you get the point.
We have only briefly touched upon excess mileage, so if you want to find out more you can read our article here.
How Does the Initial Deposit Amount Affect Lease Price?
While the overall cost of your lease deal will stay the same if you put down a larger deposit your monthly costs will come down.
Alternatively, if you can’t afford to put down a sizeable upfront cost you can incur a larger monthly cost to subsidise a lower deposit.
Essentially, it makes no difference to the total amount you pay for your lease car over the term, it’s purely down to personal preference.
If you were looking at a car and it was advertised at £200+VAT per month on a payment plan of 6+35, the total cost of the agreement can be worked out as 41 payments (6+35) of £200+VAT, which is a total of £8,200+VAT for the term. The initial payment would be £1,200 (the 6) and then there will be 35 monthly payments of £200.
But, if you wanted to put down a £2,000 deposit, you would take the £8,200 and minus the £2,000. This leaves £6,200 still to pay.
Divide that by the 35 months of the agreed term to get £177.14+VAT per month.
So, although you’re paying more upfront your monthly payments are reduced. You’re still paying the same amount overall, but you can adjust it to fit your budget.
How Does the Length of a Contract Affect Lease Price?
One way to positively impact the monthly cost of your vehicle is to select a longer-term contract. While this won’t always achieve a better price, it depends on the car, in several cases, you can see an improved price. The difference between a two-year contract and a four-year contract could mean £100 less a month, or even more in some cases.
On the flip side, some finance houses will do shorter term deals which actually work out cheaper for two-year contracts than for a longer one. Of course, the overall pay-out will be the same; you’ll just be distributing the cost in a more manageable way.
The general rule is; the longer the contract, the cheaper the monthly payments; though this is not always the case. It is important to ask your supplier for more information about this as they will know which cars are likely to be cheaper over a longer contract. They should also be able to provide you with a quote on different contract lengths enabling you to compare and make the best choice for you.
How Does the Type of Lease Contract Affect Lease Price?
Depending on the vehicle, the price can change significantly between a business or a private contract.
Often business and personal contracts have the same or very similar costs. However, there are exceptions. Some manufacturers will create heavy discounts for business leases, and along with the added VAT benefits that come with business expenditures, it can sometimes be a much cheaper option for many people.
You should make sure you research both options for your vehicle of choice and see which ends up being the better deal.
How Does the Choice of Vehicle Affect Lease Price?
A lot of the time, the best prices come when manufacturers have a number of stock cars they’re trying to deliver within a short time frame. This results in cars being sold cheaply with heavy discounts.
If you aren’t interested in driving around the newest model, however, end of manufacture models are usually discounted on the last available cars as the factory stops making them.
In terms of car brokers, the best deals often come at the end of the month and at the end of the quarter. Dealer groups might not have met their targets so will supply cars at a loss, just to hit that number on the board. This is one of the reasons why it’s beneficial to at least consult a broker before purchase to ensure that you are getting the best deal.
Having said that, credible brokers will have highly competitive pricing in place consistently and will know exactly where to access the best deal regardless of when you order.
Vehicle specification and additions can also make a huge difference. For example, manuals will almost always attract a lower monthly payment over automatics.
I doubt this will come as a surprise, but a bigger engine will also bump up the price, as do additions to the car such as built-in Satellite Navigation and parking assist. There are also other factors that affect the price such as leather interior, metallic paint is also more expensive and the colour of the car also has an impact on the price.
As you can see, there are quite a few factors that can affect lease price. Two cars very similar in the spec can end up having completely different prices depending on the manufacturer, deal type and a variety of other factors we’ve mentioned above. A key way to get a competitive price would be to ensure that you do as much research as possible into what you want from a vehicle.