Home Business Insights & Advice How does car leasing work?

How does car leasing work?

by LLB Reporter
15th Mar 18 9:48 am

Read on for more info

If you’re a little unsure about how car leasing actually works, effectively it is just a long-term rental.  If you opt into a personal car lease agreement, you will be paying a fixed monthly fee to use your chosen vehicle for an agreed time period, as well as an agreed number of miles.

To lease a car, you will need to pass a credit check to secure personal car leasing options.  If you have a higher credit score, you will often be able to get a better interest rate.  It is worth remembering that a car leasing credit check will not take into account your current outgoings, so it’s important that you are definitely sure you will be able to afford your monthly car lease payment. 

Financing a car with Personal Contract Hire (PCH) 

If you’re currently looking into the best options to hire a car long term and don’t want to purchase a vehicle, the cheapest option is likely to be personal contract hire or PCH.  With this leasing option, there are a number of details to be aware of:

Your lease agreement will likely last between 2 and 5 years.

You will be required to undergo a compulsory credit check.

Over your entire contract, you will typically pay less than with PCP.

In some case, you will also be offered a maintenance package that will cover things like car tax and servicing.

You may be required to pay around three months’ lease upfront.

Benefits of leasing a vehicle

Regardless of whether you are considering leasing a car for personal, use, business use, or a mixture of both, there are a number of benefits associated with leasing a car.

Affordability: If you opt to lease your new motor, this easily puts an end to the dilemma of whether to deplete your savings or take out a loan.  Before you sign on the dotted line of a personal lease agreement, you will know exactly how much you are required to put down as a deposit, as well as how much your monthly payment will be.

Leasing Puts You in Charge: If you choose to go with a leasing contract, this can offer you a number of different options including your annual mileage, the length of your contract, as well as vehicle servicing and maintenance.

Mechanical Peace of Mind: If you opt for a brand-new car, your vehicle is much less likely to break down.  Also, if you choose to lease your vehicle, you will have the peace of mind that comes with your vehicle’s warranty. 

Tax Benefits: If you are considering using your car for business purposes or are considering taking a cash allowance instead of a company car, leasing a car can be an extremely tax efficient option.

What makes up your lease payment?

In most cases, the lease price you will pay for your car is made up of the difference between the initial purchase price and the car’s estimated future value once your lease agreement ends.  This will also take into consideration mileage, as well as VAT.

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