Vehicle Leasing for Dummies

Vehicle leasing has been around for some time now, and was originally introduced to the United Kingdom back in the 1990s. While it has been popular for a while with businesses, it is the rise in personal leasing that has set tongues wagging and people Googling. Personal leasing has taken off as of late, and is currently one of the most popular ways to get a new car.

But what is vehicle leasing? How does it work?

In this article, we look at everything you need to know about vehicle leasing including what it is, as well as answering some of the common questions people have about vehicle leasing.

What is vehicle leasing?

Vehicle leasing, or car leasing, is essentially where you have a vehicle for a set period of time while paying a monthly fee. You have a pre-agreed mileage and you are contractually obliged to keep the vehicle in a good condition.

At the end of the contract, you hand the car back with nothing more to pay (subject to mileage and condition, but we will talk about that in more detail further in the article). You do not own the car with vehicle leasing.

The most common form of vehicle leasing, and is what many people are talking about when they refer to vehicle leasing, is Contract Hire. In the context of personal vehicle leasing, then you would be looking at Personal Contract Hire.[vc_single_image image=”60819″ img_size=”article-image”]The concept is simple; you have a vehicle for a period of time, usually between 18 months and 5 years, paying a fixed monthly fee. Once that time is up you hand the car back and get another one. It’s as simple as that. You are essentially renting the vehicle.

You can read more about Contract Hire, which is for businesses, here. You can watch and learn about Personal Contract Hire below. 

How much does vehicle leasing cost?

Many people think that when you lease a vehicle, you are paying for the whole vehicle, but this is not the case. For the record, that is a Hire Purchase agreement and this is a purchase scheme in which you own the car at the end. You can read more about Hire Purchase here.

The cost of a vehicle lease is worked out by how much the car will depreciate during the agreement. Essentially, you work out the difference between the purchase price and the residual value. The residual value is how much the car is worth at the end of the contract. You take that difference and divide it by the amount of months you have the vehicle for. This will give you how much you are going to pay monthly.Therefore, the cars that do well when it comes to vehicle leasing are the ones that depreciate slower, and have a higher residual value. These are the ones that often do well in the used car markets and include the likes of BMW’s, Mercedes’ and Audi’s. Other vehicles that do well are the ones that vehicle brokers can negotiate the most amount of discount on. If they can lower the purchase price as much as possible then this lowers the difference between the purchase price and the residual value, therefore, lowering your monthly payments. 

What affects the cost of a lease?

There are many things that affect the purchase price of the car and the residual value. These sorts of things include;

•         The mileage
•         How long you have the contract for
•         How much you put down initially
•         The make and model of the car
•         Whether you want any additional extras such as a sat-nav

You can read more about what affects lease prices here.

So that’s a brief overview of what a vehicle lease is and what sort of things affect the price. You can read more about leasing here, and the pros and cons of vehicle leasing here.

Do I have to insure my lease car?

We often get asked about insurance and lease vehicles and whether you are responsible for insuring your lease vehicle.You are the one who is responsible for insuring your lease car, and this has to be fully comprehensive insurance. This is because you do not own the car, the finance house does. And, they see you as a bigger risk because the car isn’t yours. This isn’t to say that you are going to drive the car like a maniac, but you can understand why the finance house sees this as a risk. Therefore, you cannot simply get third party insurance, it has to be fully comprehensive.

Unfortunately, this does cost more, but you are contractually obliged to get fully comprehensive insurance. There will be some vehicle brokers that have contacts with insurance companies so you may be able to get your insurance at the same time as you get a lease car. However, this doesn’t always mean you are going to get the best insurance deal so we recommend doing your research first. You can find out more about insuring your lease car here. You can also read about whether online insurance quotes are accurate here.

Can someone else drive my lease vehicle?

Another question we get is ‘can someone else drive my lease vehicle?’ and the answer is yes, as long as they also have fully comprehensive insurance.

They can also be a ‘named driver’ on your lease vehicle, which means that they can drive it as much as they like, as long as they have the correct insurance of course. However, the policy needs to be in your name. This is because you have a financial interest in the car and therefore you should also hold the insurance policy. There might be an occasion where the insurer allows the policy to be in someone else’s name but this doesn’t apply to all insurers.

You can change the name of the main driver if you wish, which means your partner or child can be the main driver on the insurance. This is done no problem, you just have to tell the insurance company.There is a difference between being the main driver and the named driver, and it’s important that you know the difference. The main driver is the one who drives it almost all of the time. The named driver is someone who will be driving it every so often, but not as much as the main driver. If the two are mixed up, then you are committing insurance fraud, so it’s very important that you do not get them mixed up and you read everything properly before you change the main driver.

However, there is no reason why your partner or your child or sibling can’t drive your lease vehicle, they just have to have fully comprehensive insurance.

You can read more about insuring someone else on your lease vehicle here.  

What happens at the end of a vehicle lease agreement?

At the end of your lease agreement, the following will happen;

You will either have to ring the finance house or they will contact you to arrange the delivery of the vehicle.

Your vehicle will then have to undergo an inspection. This will either happen a few weeks before the car is due to go back or it will happen on the day. Ideally, you will want it a few weeks before. This is because if there is any damage then you will be told about this and have a few weeks to get it fixed before the vehicle goes back.

If the vehicle is inspected on the day it is due to go back and there is damage, then you will receive an invoice in the post at a later date, which you will then have to pay. 

What happens if I damage my lease vehicle?

If you damage your lease car, then you will have to get it fixed as soon as possible. If you get it fixed, then you can shop around for the best deal. If the finance house has to get it fixed then they will not do this so you may end up paying more.

You will have to keep your vehicle in a condition that is in line with the BVRLA Fair Wear and Tear Guide. This is the industry standard for all lease vehicles on their return. If your vehicle is damaged beyond Fair Wear and Tear then you will be charged for the damage. Before your vehicle goes back, we recommend inspecting your car yourself. Be critical, and pretend as if you were buying it used. If there are things that you would pick up on, we recommend getting them repaired.

If you are charged for damage and you don’t think you should have been, then you can contact the BVRLA and they will judge for themselves whether you should have been charged. Their word is final.

You can read more about what happens when your lease car goes back here. You can also read about what happens if you damage your lease vehicle here.

What happens if I go over my pre-agreed mileage?

When you lease a vehicle, you will agree to a certain number of miles. If you go over these miles, then you will be subject to an excess mileage charge. This can range from 1p/per mile+VAT to £1/per mile+VAT. On average, though, it will cost you about 6p/per mile +VAT.

You will be charged when the contract is over. You can increase your mileage halfway through the contract, but you cannot decrease your annual mileage. Therefore, we recommend that customers who aren’t sure how many miles they are going to do to go for a lower mileage because you can always increase it.

However, sometimes it is cheaper to pay the excess mileage charge than it is to pay for more mileage that you are not going to use. Your vehicle broker will go through this with you and will be able to help you make an informed decision on your mileage.

Do I have to get my lease vehicle serviced?

When you have a vehicle lease contract, you are contractually obliged to get your vehicle serviced.

How often this will have to happen depends on the make and the model of the car, as per the manufacturer’s guidelines. The servicing will vary in cost, depending on how much work has to be done.

You will have to pay for the servicing of your lease vehicle, so you will have to take this into consideration when looking at your budget. However, you can always look at a maintenance agreement.

A maintenance agreement is an additional cost, sometimes as little as an extra £10 a month, that covers the cost of the servicing throughout the duration of the contract. It essentially staggers the cost of the servicing instead of paying it in one hit when the time for the servicing comes. 

Can I cancel my lease contract?

One of the things that we stress to people considering leasing is that they see the contract to the end. This is because lease contracts are not designed to be cancelled.

However, it doesn’t mean that they can’t be cancelled.

If you want to cancel your lease contract, then this is what you will have to do;

You will contact the finance house and tell them that you need to end the contract early. They will ask you for more information on the vehicle such as the current mileage and the condition of the car. They will then present you with a price that they can sell the car for, which is called the termination fee. You will then have to pay this in order to cancel the contract.

The cost of the termination fee will vary, so we cannot tell you how much it will cost.

You can read more about cancelling your contract early here.

Can I buy my lease vehicle at the end of the contract?

Another question we get asked quite a lot is whether you can buy your lease car at the end of the contract. Typically, you hand your lease car back at the end of the contract. This is how the contract is designed. However, if you love your car so much that you cannot bear to part with it, then the finance house may give you a purchase figure which will give you the option to purchase the car.

This doesn’t always happen, we should add, as the finance house may not allow it. But, it has been known to happen.

All you will have to do is ring the finance house and ask them for a purchase price. If you want to buy the car then you will simply pay the purchase price and that’s that.

How much do I have to put down as an initial payment?

When you lease a car, you will have to put down an initial payment. Sometimes this is referred to as a deposit but you don’t get the money back at the end.

How much you put down is entirely up to you. The more you put down initially, the less your monthly payments will be, you put down less and the monthly payments will be more.

The initial payment is usually done in monthly payments, so you could put down the equivalent of three monthly payments. How much you decide to put down will depend on your individual situation and what you prefer, small upfront cost or smaller monthly payments.

You can read more about the initial payment here. 

Can I lease a van?

Another question we get asked a lot is whether you can lease a van. There is no reason why you cannot lease a van. However, we recommend that you look at a Finance Lease rather than a Contract Hire.

This is essential because a Finance Lease has no mileage or condition restrictions which is often more suited to vans. You can read more about Finance Lease here.

Leasing a van is very beneficial for companies as there are many business benefits, including a fixed BIK rate for company car tax. In conclusion, vehicle leasing is where you have a vehicle for a set period of time while paying a monthly fee. Once that time is up, you hand the car back with nothing more to pay. Leasing is a very viable option for many and is an affordable way of getting a new car. Hopefully, this has given you some idea of what vehicle leasing is and answered some of the questions you might have had.