What Leasing a Car Means

Car leasing has become extremely popular as of late, with Contract Hire being one of the fastest growing finance schemes in the country.

Although car leasing has become more popular, there are many who still do not know much about car leasing, what it entails, or what car leasing even means.

So in this article, we are going to talk about what leasing a car means, the pros and cons of leasing, and whether it is right for you.

What leasing a car means

When we talk about leasing a car, we are talking about a finance scheme in which you have a car for a set period of time, usually between 1 and 5 years, while paying a monthly fee. You agree to a set mileage and are obligated to keep it in a good condition (more on that later).

Once that time is up, you hand the car back. Then, you simply get another new car.

Leasing a car is essentially where you rent a car, you don’t own the car at the end nor do you go into the contract with the intention of owning the car at the end.

a dark porsche macan estate driving on tarmac road with a big city in the background

Who can lease a car?

Anyone can lease a car, and there are options for both business and personal users alike. You will have to go through a credit check in order to determine whether you can make the monthly payments. If you have good credit then there is no reason why you cannot lease a car.

If you do have bad credit, then you can read our article on leasing with bad credit here.

What leasing options are there?

There are two leasing options available to you; Personal Contract Hire and Personal Contract Purchase.

Personal Contract Hire is the most common form of leasing and is often what people are talking about when they refer to leasing. With this contract, you have a car for a set period of time with a pre-agreed mileage, paying a monthly fee. Once that time is up, you hand the car back with nothing left to pay (subject to mileage and condition restrictions).

The business version of Personal Contract Hire is Contract Hire, and works in the same way. You can read more about Personal Contract Hire here, or watch our video below.

 

Personal Contract Purchase works in a similar way to Personal Contract Hire in which you have a car for a set period of time while paying a monthly fee. However, once that time is up, you have three options;

  •         Hand the car back with nothing more to pay

o   Subject to mileage and condition restrictions

  •         Part-exchange the car
  •         Buy the vehicle for a pre-agreed value

o   This is called the Minimum Guaranteed Future Value and is decided at the start of the contract.

You can read more about the Minimum Guaranteed Future Value here.

Contract Purchase, the business version of Personal Contract Purchase, works in a similar way. You can read more about Personal Contract Purchase here or watch our video below.

 

How does leasing a car work?

Leasing a car is very much the same process as getting a new car on a purchase scheme such as a Hire Purchase, or buying it outright with cash.

There are a few ways you can get a lease car, you can either look online, go through a dealership or go through a vehicle broker.

How do I lease a car online?

As leasing has risen in popularity, so have online lease companies. These include websites such as OrangeWheels and CarWow.

They are essentially the middle man between yourself and a dealership. You choose the car you want and then the Dealers pretty much bid for your business. You then choose the deal you want.

Using an online leasing company is hassle free, you don’t have to speak to anyone and you don’t have to leave your house. They are also completely independent, which means they are not tied to any brand or dealership. However, you don’t get to see the cars and you will still have to go to a dealership if you want to test drive a car. Also, they might not have a good customer service process in place should something go wrong. And you need to take extra care when choosing an online service as they might not be regulated. You can read more about what to look for when choosing a leasing company here.

Man and woman with car salesman deciding on their next vehicle they want to buy.
Have you asked these 7 questions to  ensure you secure the right Vehicle Broker?

How do I lease a car through a dealership?

Going through a dealership is the traditional way of getting a car, but this doesn’t always mean it’s the best way for you.

You will decide which brand to go for, pop into their nearest dealership and choose which car you want. It’s as simple as that. When you go through a dealership you might be able to walk away with the car there and then, and you probably won’t have to pay an administration fee. However, you are limited to one brand, and dealerships often only have access to a few finance houses. This means that you might not be getting the best deal for your situation. They are also not independent, which also means you might not be getting the best deal. However, they are good if you know which brand you want, and you want to be able to sign the paperwork there and then.

Row of seat cars at a dealership in various colours.

How do I lease a car through a vehicle broker?

Vehicle brokers have become a very popular way of leasing a car, and it’s understandable as to why.

Similar to an online company, they essentially act as the middleman between yourself and the dealership. However, the key difference is that they do all the legwork for you. You will ring a vehicle broker and they will ask you your requirements including your budget and what sort of vehicle you are looking for. They will then go away and do the research for you and come back with a choice of vehicles and prices for your consideration. You then choose the best for your situation.

Man handing keys back at end of his lease agreement.

Vehicle brokers are good if you don’t want the fuss of shopping around or negotiating price. Experienced vehicle brokers will also have great relationships with finance houses and therefore might be able to get better discounts. They are also independent, meaning you get an honest opinion. However, you will still have to go into a dealership if you want to see the car or test drive it. And, you won’t be able to drive away with your car there and then. If you are looking for a leasing broker, then you will want to ensure they are accredited. You can read more about what accreditations you should be looking for in a leasing company here.

What are the pros and cons of leasing a car?

There are many advantages to leasing a car, which is why it’s become so popular. For example;

  •         You don’t have to worry about selling the car on

o   Because you hand the car back at the end, you don’t have to think about selling the car on, which can be a hassle

  •         You don’t have to worry about depreciation

o   Cars lose their value as soon as you drive them, and they depreciate the most in their first few years. This means that you are going to lose money when it comes to reselling. You eliminate this risk when you lease a car.

  •         You get to drive a new car every few years

o   New cars are more reliable, more economical, safer and more technologically advanced. When you lease, you get to drive the latest models every few years. What more could you want?

   If you choose a Personal Contract Purchase, then you have options at the end

o   If you aren’t sure what you want to do at the end of the contract, then Personal Contract Purchase is perfect for you as you have those 3 options.

  •         You can often get a nicer car for less money

o   The way lease prices are determined is by taking the purchase price and the residual value (how much it is going to be worth at the end of the contract) and working out the difference. You then divide that by how many months you have the vehicle for. This is opposed to a purchase scheme where you are paying for the whole car but staggering the cost

o   Therefore, you can often afford a nicer car because you are not paying for the full amount of the car. And, many prestige cars such as Mercedes’ and BMW’s depreciate slower, reducing the price even further.

You can read more about how lease prices are determined here.

red mercedes benz a-class amg hatchback driving down wet road in forest area

However, leasing isn’t for everyone, and there are some disadvantages. These include;

  •         The fact that you don’t own the car

o   This is subjective, as you might not be bothered by the fact that you don’t own the vehicle at the end of the contract. However, if you do like the thought of owning your car, then leasing probably isn’t for you.

  •         You are subject to mileage and condition restrictions

o   When you lease a car, you agree to a set mileage and will face extra charges if you go over that mileage.

o   You are also contractually obliged to keep the vehicle in a good condition that is in line with the BVRLA Fair Wear and Tear Guide. This is the industry standard for all leased vehicles. When you hand your vehicle back, it will undergo an inspection. If there is damage that sits outside of the Fair Wear and Tear Guidelines, you will be charged for the damage.

o   You can read more about mileage restrictions here and the Fair Wear and Tear Guide here.

  •         If you have bad credit, then it will be more difficult to lease a car

o   But not impossible. However, you will face more challenges and it might be more expensive to lease a car if you have bad credit

o   The key to leasing with bad credit is finding a trustworthy vehicle broker that has the experience in working with those with bad credit.

Is leasing right for me?

Leasing is a viable option for pretty much everyone. If you have a strong credit score, want a new car every few years and don’t want the hassle of reselling, then there is no reason as to why leasing wouldn’t be perfect for you. However, if you want to own your car at the end or you don’t want to be restricted by mileage and condition guidelines then leasing probably isn’t right for you and your situation.

metallic blue mini countryman hatchback driving down country lane at sunset with blurred background

In conclusion, leasing a car is essentially the same as renting a car in which you have it for a few years while paying a monthly fee, but you don’t own it. At the end of the contract, you hand the car back with nothing more to pay. You are subject to mileage and condition restrictions, however, and you often have to have a strong credit score in order to be able to lease a car. Leasing is perfect if you like the thought of having a new car every few years and not having to worry about depreciation or reselling the vehicle on. However, if you want to own your car at the end or do not want to be bound by mileage and condition restrictions, leasing probably isn’t right for you. There are a few ways in which you can lease a car including online, or through a dealership or a vehicle broker. All have their pros and cons and are perfect for different situations. Hopefully, this has cleared a few things up in regards to what leasing a car means, the pros and cons, and whether it is right for you.

Now you know what leasing a car means let's explore all the  potential problems you can encounter when leasing 

Holly Martin

Content Co-ordinator at OSV Ltd
Holly enjoys: Reading, music and spending time with friends.

Within a week of Holly starting work at OSV she became an indispensable part of the marketing team. She's very intuitive and gets on with the whole office effortlessly.
Holly Martin

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