Menu

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:

Leasing save money

Introduction to Leasing

How Does Leasing Work?

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

Buying versus leasing

WHAT IS THE DIFFERENCE BETWEEN LEASING AND BUYING?

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.

Grille dollar

HOW MUCH DOES IT COST TO LEASE A CAR?

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.

Lease or buy

SHOULD I LEASE OR BUY?

There are pros and cons of each, and we’ve outlined them below.


SETTING UP YOUR LEASE

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


Establishing the leasing contract

Getting your vehicle ready for the road

At the end of the lease

UK and US Leasing Glossary

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!

Balloon Payment

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.

Benefit in Kind (BiK)

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.

Business Contract Hire (BCH)

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.

Capitalized cost reduction

The amount you’ve managed to negotiate your lease by.

Depreciation

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.

Drive-off fees

The fees you must pay before you can use the car. These will be outlined during the set-up process.

Excess mileage fee

A fee per mile you will pay if you exceed the agreed upon mileage limit

Funder

The company that funds your lease cost up front, to whom you make monthly payments

Guaranteed Auto Protection (GAP) insurance

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.

Guaranteed minimum future value (GMFV)

An amount agreed and written into a PCP contract that determines how much the driver will have to pay to own the vehicle.

Hire purchase (HP)

An arrangement where the lessee can opt to buy the vehicle at the end of the lease period.

Initial payment

The first non-deposit payment of the lease. This is not refundable.

Lead time

The period of time between you making an order with us and receiving your car

Lessee

The person who has leased the vehicle

Lessor

The party leasing the car to the lessee

Manufacturer’s Suggested Retail Price (MSRP)

The value of the car as outlined by the company who made it.

Mileage limit

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

Money factor (also known as lease factor and finance factor)

A number that functions like an APR, and is presented as a decimal. The money factor multiplied by 2400 equals your monthly payment.

Personal car leasing (AKA personal contract hire (PCH))

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.

Personal contract purchase (PCP)

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.

Residual value

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.

Road fund license (RFL)

The full name for road tax.

Total repayable

The full amount you will need to repay during the lease period

Value added tax (VAT)

A tax added by the government to certain products and services. See this page on the government website for more information on VAT.

Vehicle owner

The person or organisation who legally owns the vehicle. This will be the finance company.

Vehicle keeper

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.

V5 form

The legal document that records the vehicle’s legal owner

VE103 form

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.

Wear and tear

The agreed upon amount of damage that is considered acceptable to a car throughout the lease. Any damage beyond this will be charged.