What Is Car Leasing?
The short answer: leasing is a hire agreement where the buyer makes a fixed monthly payment for the rental of a vehicle for a predetermined amount of time. The monthly payment is determined by the car’s initial value and its predicted residual value, i.e. what its value will be at the end of the lease.
The rest of this page is the long answer: we’ve attempted to answer every question we could think of about the leasing process.
The areas covered in this guide:
- An introduction to leasing
- How leasing works
- The differences between leasing and buying
- Costs of leasing
- ‘Should I lease or buy?’,
- Setting up your lease
- A UK and US leasing glossary.
Are there Different Types of Car Leasing?
Is leasing more complicated than buying?
Are there different leasing rules for vehicles of different sizes?
Can you help me choose the right vehicle for my needs?
The Contract Hire company calculates the residual value for the vehicle based on the age, length of hire and the mileage it will be covering. They charge the user a monthly rental to cover depreciation over that period plus a funding charge, along with any add-on services required such as maintenance. The user has no risk in ownership and has a predictable monthly cost. The user effectively pays just for the use of the vehicle
How is the leasing process structured?
What do I have to do?
How long does a vehicle lease last?
What happens to the car at the end of the lease period?
Is there any risk associated with leasing?
How old do you have to be to lease?
Which type of vehicles can be leased?
Can someone who isn’t named on the lease drive the car?
Can the lease be transferred to someone else before the contract ends?
Why are their mileage limitations?
Is road tax included with a lease?
Does my lease vehicle need an MOT?
Is there a regulatory body for vehicle leasing?
Are Vantage Leasing a member of any such organisations?
What does membership entail?
Are there other checks in place to make sure lease vehicles are safe?
Leasing a car is to buying a car what renting a property is to buying one.
It differs to car hire in that you have the car for a longer term, usually one to three years. It differs from outright ownership in that you return the car at the end of the lease period.
In order to be mutually beneficial for the leasing company and lessee, some limitations are placed on the vehicle. These ensure that the vehicle is returned in a suitable condition for re-sale.
Some of the questions we get asked about what you can do with a lease vehicle are answered below.
Can a lease vehicle be taken abroad?
Am I allowed to use my lease vehicle for towing?
Can I put a custom number plate on a leased vehicle?
Who owns the lease vehicle?
The leasing company charge the user a monthly rental to cover depreciation over that period plus a funding charge, along with any add-on services required.
What am I paying for when I lease?
How is the residual value calculated?
How is my monthly payment calculated?
How do I pay?
What are the tax implications of leasing?
What are the Benefit in Kind implications of leasing?
Hang on - what does Benefit in Kind mean?
Which models have the most appealing BiK statuses?
Is it possible to trade in my current car to reduce the cost of a lease?
Can you provide an example lease breakdown?
There are pros and cons of each, and we’ve outlined them below.
When does it make sense to lease a car rather than buy?
What are the benefits of leasing?
Should I lease a car or get a loan to buy a vehicle outright?
We will guide you through the leasing process as quickly as possible, and then you will then be able to collect your vehicle (or request delivery) and begin driving.
Choosing your vehicle
How do I choose the car I want?
Can I customise the car?
Establishing the leasing contract
How will the terms of the lease be arrived at?
How do mileage limits work?
Which actions will be taken at the start of the lease?
What documents will I receive?
How do you look after my data?
Getting your vehicle ready for the road
Do I need insurance on my lease vehicle?
How do I get the vehicle?
What should I do when I receive the car?
What happens if the car is damaged or in an accident during the lease?
What is a maintenance package?
What is included in a maintenance package?
What happens if I want to change vehicles before the lease has finished
At the end of the lease
What happens at the end of the lease?
Is there a way I can keep the car at the end of the lease?
What happens if there is a dispute at the end?
In this section we define all the words in the leasing process that you may not be familiar with. Key terms will be provided in a summary with your leasing documentation, but we’ve put together this A-Z glossary for further reference. The lingo across the pond is slightly different from ours so we’ve included American terms too – the more info you have the more prepared you will be to make an informed decision!
On some lease arrangements you can elect to pay a proportion of your lease cost at the end of the agreement. This lowers interim monthly payments.
If your employer gives you a lease vehicle as a company car and you are given the option of using this for private use (including commuting), it will have a BiK value attached to it. This shows that it is a benefit you receive as part of your job that isn’t in the form of a salary and ensures you pay tax according to the BiK value of the vehicle.
See Personal car leasing (AKA personal contract hire (PCH)). This is the same but with the car being leased by a business rather than an individual.
The amount you’ve managed to negotiate your lease by.
The amount a vehicle’s value is expected to decrease by in a given amount of time. The lower the depreciation the lower your monthly repayments will be.
The fees you must pay before you can use the car. These will be outlined during the set-up process.
A fee per mile you will pay if you exceed the agreed upon mileage limit
The company that funds your lease cost up front, to whom you make monthly payments
Originally an American term referring to the difference between the cash value of a vehicle and the balance owed on its financing. This is now included on some UK leases.
An amount agreed and written into a PCP contract that determines how much the driver will have to pay to own the vehicle.
An arrangement where the lessee can opt to buy the vehicle at the end of the lease period.
The first non-deposit payment of the lease. This is not refundable.
The period of time between you making an order with us and receiving your car
The person who has leased the vehicle
The party leasing the car to the lessee
The value of the car as outlined by the company who made it.
The amount of miles you are allowed to drive your lease vehicle per year of the lease, to be agreed upon before the lease commences and written into the contract.
Note: in the US this is called Allowable Mileage
A number that functions like an APR, and is presented as a decimal. The money factor multiplied by 2400 equals your monthly payment.
An alternative to car ownership where drivers pay a monthly amount to use a vehicle over a fixed period of time, usually 2 or 3 years, before returning the car to the leasing company.
Similar to personal contract hire except you can opt to buy the car at the end of the contract by paying a balloon payment (equal to the GMFV) and possibly including a purchase fee.
An estimate of how much the car will be worth at the end of the lease, expressed either as a percentage or a cash value.
The full name for road tax.
The full amount you will need to repay during the lease period
A tax added by the government to certain products and services. See this page on the government website for more information on VAT.
The person or organisation who legally owns the vehicle. This will be the finance company.
The person or organisation who are responsible for the vehicle during the lease. This will be Vantage Leasing or the individual or business who is leasing the vehicle.
The legal document that records the vehicle’s legal owner
The official name for a Vehicle on Hire certificate: the piece of paper that shows you’re allowed to take your hire vehicle abroad. See more on the gov.uk website.
The agreed upon amount of damage that is considered acceptable to a car throughout the lease. Any damage beyond this will be charged.