This guide is intended to be used as a helpful reference for those new to the idea of personal leasing. You’ll find an overview of what personal leasing is, how much it can cost, the benefits of a personal lease and how the process works.
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; attitudes towards car ownership are changing and more and more people are becoming comfortable with the concept of leasing their next vehicle, rather than buying. We’re seeing a growth in the number of businesses that offer their employees a car allowance rather than a company car, which in turn is encouraging private individuals to enter into personal leasing agreements.
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 month’s lease costs upfront (9 payments in advance), then a monthly payment for the remaining 35 months. Here’s a worked example:
|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|
There are several factors that determine a good lease car. These include seasonal considerations, supply and demand, residual value (how much the car will be worth at the end of a lease) and the wider economy. When it comes to deciding which makes and models of cars are best to lease, a good rule of thumb is to choose from 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.
There are certain criteria which need to be met to qualify for a personal car lease contract. These include:
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 finance company to check your eligibility for finance. Your application will undergo a thorough automated credit check before a decision is made. If you have a good credit score then there shouldn’t be any issue in arranging the leasing finance agreement.
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.
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 several benefits and other things you should consider. For more information read our personal finance options guide.
At the end of the contract, the vehicle is returned to your leasing provider. This means you are then free to lease or purchase another vehicle. Should you wish to extend your leasing agreement, get in touch with your leasing provider and see if this is possible. To ensure that you aren’t left without a vehicle, it’s worth arranging for a new lease contract to coincide with your current contract ending.
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