How Car Leasing Works

Car leasing is becoming a more and more popular alternative to buying a new car outright since it gives you a flexible and cost-effective way to drive the latest makes and models.

Whether you're considering personal car leasing or business car leasing, the process remains largely the same. Instead of taking out a car loan, you agree to a lease contract, making fixed monthly payments for a set period before returning the vehicle.

But how exactly does leasing a car work? Let’s break it down step by step.

How car leasing works: a simple breakdown

Choose Your Car

Whether you’re after a brand-new car or a new vehicle suited to your lifestyle, you start by selecting a model that meets your needs. Car lease deals are available for everything from compact city cars to luxury SUVs. Some people like to keep on an eye on the latest special offers, whereas others prefer to take advantage of quick delivery stock deals – ultimately the process has to be the one that's right for you.

Select your lease term

You'll agree on a lease agreement that outlines:

• The lease term (usually 24 to 48 months)

• Your annual mileage limit (ranging from 5,000 to 30,000 miles)

• Whether you need maintenance packages to cover servicing, tyres, and repairs

• The lease term (usually 24 to 48 months)

• Your annual mileage limit (ranging from 5,000 to 30,000 miles)

• Whether you need maintenance packages to cover servicing, tyres, and repairs

Make your initial payment

This is an upfront cost, typically equal to one, three, six, nine, or twelve months’ worth of lease payments. A larger initial payment means lower monthly payments throughout the contract.

Pay monthly rentals

Throughout the lease period, you’ll make fixed monthly payments. These payments cover the cost of the car’s depreciation and additional finance company fees. Road tax (or vehicle excise duty) is usually included in most contract hire agreements.

End of the lease

When your lease contract ends, you simply return the leased car to the leasing company. If you've stayed within the mileage limit and the car is in good condition, you won’t face extra charges. For more information, keep scrolling – we cover it in more detail later!

Types of car leasing

Personal Contract Hire (PCH)

Personal Contract Hire is the most common form of personal car leasing. It allows you to drive a brand new vehicle with fixed monthly payments, without the burden of ownership. At the end of the lease, you return the car without worrying about depreciation.

Business Contract Hire (BCH)

Business car leasing, also known as business contract hire, is designed for companies looking to lease multiple vehicles for employees. It often includes VAT benefits and lower monthly payments compared to personal contract hire.

Finance leasing & operating leasing

For businesses that need flexibility, finance leasing and operating leasing allow companies to use vehicles with different lease agreement structures, where they may eventually own the vehicle outright.

Car Leasing vs. Personal Contract Purchase (PCP)

Both car leasing and personal contract purchase (PCP) involve monthly lease payments, but there are key differences:

• PCH: You lease a car for a set time and return it at the end of the lease. There's no option to buy.

• PCP: At the end of the lease period, you can either return the car, pay a final balloon payment to own the vehicle outright, or part-exchange it for a new car.

If you prefer fixed monthly payments and changing your car regularly, personal contract hire is often the better choice.

What happens at the end of the lease?

When your lease ends, you return the leased car to the leasing company, which will inspect it for wear and tear. If the vehicle remains in good condition and within the annual mileage allowance, you won’t incur extra costs.

If you've exceeded your mileage limit, you may face an excess mileage charge. Similarly, if there’s damage beyond fair wear and tear, you may be responsible for additional repair costs.

Can you end a car lease early?

When you take out a lease, there is a certain amount of commitment on your behalf for the duration of the lease, so it's important to think carefully about your decision. That said, you do have some options.

If you want to end your lease agreement early, you may have to pay an early termination fee. This varies depending on how much of the lease contract is left.

If you don't know whether you’ll need to terminate your lease early, it's always worth checking the contract hire terms before signing.

Does car leasing include insurance and maintenance?

Car insurance

Most personal and business car leasing deals do not include car insurance, although in some cases, like salary sacrifice, it might be part of the package. You'll be expected to arrange fully comprehensive insurance before you take delivery of your shiny new car, so it's always worth sorting it as early as reasonably possible.

Maintenance costs

While maintenance costs aren’t typically included, most lease agreements offer optional maintenance packages to cover:

• Servicing

• Tyres

• MOTs (if required during the lease term)

This will be an extra amount that you add to the price of the monthly lease, Opting for a maintenance package can help you avoid unexpected expenses.

Who owns the car in a Lease?

Unlike a car loan, where you become the legal owner, a leased car remains the property of the leasing company or finance company. This means you cannot modify or sell the car during the lease period.

Is car leasing right for you?

Leasing a car offers many advantages, including:

• Lower monthly rentals compared to financing a car outright

• The ability to drive a brand new car without ownership worries

• No need to worry about selling a used car at the end of the lease

• Access to exclusive car lease deals

However, if you prefer to own the vehicle outright or want full flexibility over your mileage limit, you might want to consider other car finance options.

Find the best car lease deals today

If you're ready to explore car leasing work options, browse our latest car lease deals and find the perfect brand new vehicle to suit your budget. Whether you’re looking for personal car leasing, business contract hire, or van leasing, we’ve got a lease deal that’s right for you.

For expert guidance, contact us today and let our leasing company help you find the best lease agreement for your needs!