A guide to personal leasing

For those new to the idea of personal leasing, this guide should be a useful reference. You’ll find an overview of what personal leasing means, how much it can cost, the benefits of personal leasing and how the process works.

So, what is personal car leasing?

Personal leasing, also known as personal contract hire is a long-term rental agreement that a private individual takes out with a finance company. You get to lease a brand-new car for a fixed term (normally 2, 3 or 4 years), at an agreed mileage limit for a fixed monthly payment. At the end of the contract, you simply hand the car back to the finance company.

The personal leasing market is growing and this is for a number of reasons. Attitudes towards car ownership are changing and so more and more people are comfortable with the concept of leasing a car over purchasing one. We’re also seeing a growth in the number of businesses offering their employees a car allowance rather than a company car which is encouraging private individuals to enter into personal leasing agreements.

What are the benefits of personal leasing?

  • You know what your motoring costs are. As your monthly payments are fixed, you know how much it will cost to run your car. Road tax is also normally included, and if you take out a maintenance agreement, which covers you for servicing and repairs, you won’t run into any unexpected car repair bills either.
  • No risk of depreciation. When you lease a car or van, you effectively pay for the depreciation of the vehicle over your contract term. This means that it’s the finance company that takes on the depreciation risk, not you. You don’t need to have any concerns as to what the vehicle is worth at the end of the contract as you simply hand the vehicle back.
  • Drive a better car. With a car lease you only pay for the car’s depreciation over the duration of the lease contract, not the value of the car (because you don’t own it). This means your monthly payments are typically lower compared with other forms of finance. As a result, you can lease a better vehicle than you would be able to if you were purchasing it.
  • Reliability of the vehicle. Many of us have experienced driving an ageing car, with its regular mechanical faults, and the dreaded MOT where you know the bill is going to be high. As you will lease a brand-new car, this won’t be an issue, and if, unfortunately, something does go wrong with the vehicle, you will be covered by the manufacturers’ warranty.
  • Get yourself a great deal. There is a myriad of leasing brokers in the market who offer some great deals. They will work with the finance companies, dealerships and in some instances even provide their own vehicle stock to customers. It pays to shop around and see what deal you can get on your next lease car.
  • Avoid MOT costs. Cars and vans don’t need a MOT until they are three years old. If you take out a 2- or 3-year leasing contract you’ll avoid the hassle and the cost of a MOT.
  • A low initial payment. For most leasing contracts you can pay as little as 3 months’ worth of rentals up front and then you can drive away your new car. So, on a personal lease of £200 per month, you’d only need to pay £600 (3 x £200) to drive a brand-new car.

What are the restrictions I need to be aware of when leasing a car?

  • If you exceed the agreed mileage amount you will incur a penalty for the extra miles you’ve done when the contract comes to an end. The amount you pay is based on a pence per mile and can vary slightly depending on the vehicle. It’s important that you agree a realistic mileage limit when you take out your contract and work out if it’s worth paying a bit more to increase your mileage allowance – from 8,000 to 12,000 miles per year for example – rather than paying the penalty at say 10p for every extra mile over 8,000 miles.
  • You must return the car in a good condition – within the BVRLA’s “fair wear and tear” guidelines. The BVRLA (British Vehicle Rental and Leasing Association) is the rental and leasing industry’s governing body. It sets out a series of guidelines to make explicitly clear what is and isn’t fair wear and tear to maintain consistency across the industry and to avoid misinterpretation.

    Detailed information as to what constitutes fair wear and tear is covered in our   wear and tear guide   but as an example, interior upholstery should be clean and tidy, with only slight wear showing whereas burns, tears or stains are not acceptable. When you return the vehicle to the leasing company, if it doesn’t meet the fair wear and tear guidelines you will incur a penalty charge. This is to allow the leasing company to recoup the cost of repairs.

  • You can’t modify the vehicle in any way without permission from the leasing company or finance company if the contract is directly with them.
  • You may not be able to take the car abroad without permission from the finance company.

What’s the jargon mean?

Personal leasing deals are normally available on a 2, 3, or 4-year contract. A 3-year deal that’s advertised as “9+35” means that the initial payment required is 9 months’ lease costs upfront (9 payments in advance) then a monthly payment for the remaining 35 months.

Here’s a worked example.

An Audi A3 Sportback, 30 TFSI 116 Sport 5dr car is advertised at £395.32 on a personal leasing contract at 9+35 with an annual mileage allowance of 10,000 miles. Here’s the breakdown:

Personal leasing per month = £395.32 per month

Initial payment = 9 months rentals = £3557.88 Inc. VAT (9 x £395.32)

35 months rentals (3 year contract) = £13,836.20

Excess mileage charge = 10.8p per mile Inc. VAT

Processing fee: £239.99 Inc. VAT

Which cars are best for personal leasing?

There are a number of factors in determining a good lease car. They include seasonal factors, the supply and demand of cars, a cars’ residual value (how much the car will be worth at the end of a lease) and what’s happening in the wider economy can all impact on the leasing market.

When it comes to deciding which makes and models of cars are best to lease, a good a good rule of thumb is to choose those models which depreciate the slowest (i.e. cars that will lose as little value as possible over the term of a lease agreement). With a leasing contract, you only pay for the depreciation of the vehicle each month, so if a car holds its value well over the contract term, your monthly payment will be lower. Historically, this has meant that German carmakers, such as Volkswagen, Audi, BMW, and Mercedes-Benz have been very popular makes to lease in the UK as they tend to hold their value better than other manufacturers.

Am I eligible for personal contract hire?

There are certain criteria points which need to be met in order to qualify for a personal car lease contract. These include:

  • You must be a minimum of 21 years of age
  • You must have a full UK driving licence
  • You need to provide 3 years of employment history
  • You need to  provide 3 years of address history
  • You need to have a good credit rating. You credit rating will be checked by the finance company to determine whether you can afford the monthly payments.

Once you’ve chosen your vehicle and agreed your contract terms, you’ll need to complete a finance application form. This will then be sent to the chosen finance company to check your eligibility for finance. Your application will undergo a thorough automated credit check before a decision is made as to whether you qualify for personal leasing. If you have a good credit score then there shouldn’t be any issue in arranging the leasing finance agreement.

How long does the credit check take?

Most funders respond to a credit application within 2 working days, however during busy periods (particularly March and September when new vehicles are registered), it can take up to 5 working days to receive a response from the finance company.

What are the different ways I can finance a personal lease?

There are a number of different ways you can finance a personal lease. Personal leasing (or personal contract hire) is the most common way to lease a vehicle. Alternative financial agreements include personal contract purchase, hire purchase or lease purchase. Each finance option has a number of benefits and other things you should consider. For more information about finance options read our personal finance options guide.

What happens at the end of the contract?

At the end of the contract, the vehicle is returned to your leasing provider and your contract with them ends. This means you are then free to lease or purchase another vehicle. Alternatively, should you wish to extend your leasing agreement then do get in touch with your leasing provider and see if this is possible.

To ensure that you aren’t without a vehicle, it’s worth considering your options some months prior to the end of your current contract, and to arrange for a new lease, or alternatively a vehicle purchase which coincides with your current contract coming to an end. This is to ensure that you don’t find yourself without a vehicle for any period of time.

Next steps

If you’re ready to start your vehicle search, go to our personal leasing page or view our list of special offers. If you’d like to know more about personal leasing, then just give us a call on 0113 387 4241, and we can discuss your requirements.

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