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How Does Car Leasing Work?

Looking for a new car can feel like one of the most stressful, time-consuming, expensive processes around, but it doesn't have to be that way!

At LeaseCar, we're the UK's leading provider of car leasing services for both individuals and businesses. That means we've met thousands of people in exactly the same position as you, and we've helped them drive away happy with a brand new vehicle on the perfect vehicle lease for them.

Car leasing might be an option that you haven't considered, or just one you don't feel like you know enough about! Fortunately, if this is the case, you're in the right place. In this guide we'll answer one of the most common questions we hear as car leasing specialists once and for all:

"How does car leasing work?"

We'll be taking a look at a whole host of important topics, including:

  • The basics of car leasing.
  • The pros and cons of leasing a vehicle.
  • Different types of car leasing.
  • Car leasing for individuals and businesses.
  • What the process of leasing a car looks like, from choosing your vehicle to returning it at the end of the lease.

We'll also touch on the important requirements and considerations you need to take into account when leasing a vehicle, so you feel confident you're making the right decision when you choose LeaseCar.

For all of this and more, keep reading, orget in touch with the LeaseCar team to discuss the options and secure the perfect leasing deal today!

What Is a Car Lease and How Does It Work?

Car leasing works in much the same way as leasing a house or apartment, something many of us will have done before!

Once you've found the right car for you, you'll sign a lease agreement and pay a predetermined amount every month to use the vehicle. You follow the conditions set out in the lease agreement and then when the agreement is up, simply return your vehicle!

Your monthly lease agreement cost will be calculated based on a few different factors, such as:

  • The current value of the vehicle you've chosen.
  • The depreciation of the vehicle you've chosen (the difference between its current value and its estimated value at the end of the lease).
  • Interest and fees from your lease provider.
  • The length of the lease.
  • How your rental costs are distributed - will you pay more at the start or end of the lease in exchange for lower regular payments?
  • The mileage you expect to drive per year, and the mileage you're allowed to accrue over the course of the entire lease.

Your lease agreement will also set out the terms of the lease, just like a tenancy agreement would.

A lease agreement will take into account all of the things we've just talked about, but will also include terms like:

  • The length of the lease (most car lease deals are between two and four years long).
  • The annual mileage of your vehicle.
  • The mileage of your vehicle over the course of the lease deal.
  • Any penalties you might incur for going over these limits.
  • How much you have to pay upfront, and a monthly payment schedule covering the entirety of the lease period.
  • What happens if you miss a lease payment.
  • Your options at the end of the lease term
  • Rules regarding early termination of your lease agreement

What Are the Benefits of Leasing a Vehicle?

There are lots of reasons you might want to choose a leasing car, rather than buying your car outright.

First and foremost, leasing a car is more affordable than most car finance options. Leasing a car generally has considerably lower monthly rentals than financing a purchase of the same vehicle. You'll also require a considerably smaller initial cost downpayment/deposit on a leased vehicle compared to one you are purchasing outright.

This also means that you might be able to afford a more premium vehicle than you would if buying your vehicle outright. You might be able to get a more prestige brand car, a newer car or an upgraded model when you lease your vehicle instead of buying it.

Leasing a car also means that you can have a modern, up-to-date vehicle all the time! For example, if you lease a new car for 4 years, you simply bring it back at the end of the term before driving off with a brand-spanking-new one. This means that you'll never drive a car that's more than 4 years old, so you can feel confident it's safe, comfortable and unlikely to have many issues with wear and tear!

When you take out a lease contract with LeaseCar, you'll can also get access to our comprehensive maintenance package to help ensure your car is always running in tip-top shape! Car leasing companies, just like landlords, are the ones liable for many of the costs involved with the repairs and maintenance of your vehicle in certain instances. With a car maintenance package, you’ll pay a small additional cost every month for your maintenance cover (included in your regular rental payments), and then we'll handle the rest. From a broken bulb, to worn tyres and much more, you'll be covered for your regular maintenance costs. This also includes the regular servicing that you may need to carry out as part of your lease terms.

What are the benefits of business car leasing?

Car leasing isn't just for individuals! A business car lease is an excellent option for businesses of all sizes. Whether you need one or two cars for a sales team, or a whole fleet, business car leasing deals can save you time, and money and give you peace of mind that your vehicles are safe, comfortable and of great value.

Like personal car leasing, a business lease car is one of the most affordable ways to get a new vehicle. Low initial rentals and more affordable car lease monthly rentals make leasing a brilliant cost-saving option for businesses of all kinds.

A business car lease gives you fixed monthly costs, which allows you to accurately forecast and monitor cash flow for your fleet and your business vehicles. These fixed costs also mean you have peace of mind that your outgoings won't change every month.

As car leasing specialists, we often get asked the question “Can I claim back tax on a business lease?”, and the answer is yes! While also being the cheaper option generally (compared to buying a vehicle outright or on car finance), businesses using car leasing can also reclaim some VAT on their company vehicles, provided your vehicles have only been used for business purposes.

When your business leases a vehicle, you can claim a car lease tax deduction, which includes up to 50% of the VAT on your monthly lease payments. VAT applies to consumer goods and tends to sit between 15% and 20%. This means that as a business, you can claim a discount of up to 20% on your lease payments. You can also write off the lease payments as a non-taxable business expense.

However, there are a few stipulations in place that can affect the amount of tax you can reclaim. The main one is what you use your vehicles for. If your company vehicles are used in a personal capacity - even for odd jobs, short trips or small personal errands - then you’ll only be able to claim 50% of the VAT on your lease payments back.

When it comes to our business leasing customers, we handle all the documentation and registrations on your behalf. Managing the documentation for one car, let alone a full fleet of company cars, is a time-consuming process that can get very complicated very quickly. That’s why we’ll manage all of the documentation and paperwork around the leasing of your business vehicles, and free up your time for the more important things!

The LeaseCar team has extensive experience when it comes to managing, updating, and maintaining vehicle lease records for our customers, so you can rest assured that your documentation is in safe hands. If you do need any of your documentation, just let us know and we’ll be able to provide you with copies of any of the documents you require, all kept up-to-date on your behalf.

What Are the Disadvantages of Car Leasing?

While car leasing is a great option for lots of people, there are some reasons that it might not work for you.

If you find yourself at a point where you don’t need a car during your lease period, terminating the lease early can be expensive. If you own the car outright, you always have the option to sell your vehicle when you don’t need it anymore - this isn’t possible when you lease a car.

There are some conditions on the use of leased cars, which some people or businesses may find restrictive. Leased cars generally have conditions such as:

  • The mileage of your car per year.
  • The mileage of your car over the course of the lease.
  • No changes or customisation to the appearance of the vehicle (decals, sprays, wraps etc.).
  • Not being allowed to take the vehicle out of the country.

If you don’t follow the rules of the lease, you can face hefty penalties when you return the vehicle.

You also have liability for any damage when it comes to returning your vehicle at the end of the lease. You’ll agree to the conditions of the car when you return it when you first sign your lease. This will set out what amount of regular wear and tear is allowed, and if you return the car in a worse state than agreed, you can be subject to some big lease car return charges.

What are the drawbacks of business car leasing?

For businesses looking at car leasing as an option, there are a few additional factors to consider before taking out your lease,

  • There is no building of equity with a leased car - you do not own the vehicle and there isn’t an option to buy it at the end of your contract.
  • You will need the amount of mileage you need and if you go over this, you will have to pay an excess mileage charge - this is the same for both personal and business contract hire, however, you can adapt your personal mileage fairly easily, while business mileage is usually pretty non-negotiable.
  • You must pay for fully comprehensive insurance cover.
  • If you lease a vehicle, you can't sell it or use it to pay outstanding debts.
  • If you find your organisation doesn’t need the vehicle anymore, you don’t have the option to sell or get rid of it - you are tied in for the full length of the lease contract (and shorter lease contracts are generally a bit more expensive).

If you do decide to lease a vehicle for your business, you still need to decide if you want to lease your vehicle through your limited company or personally, to then be used as a company car. If you’re a small business or sole trader, there are a couple of advantages to a personal lease rather than a lease via a limited company. If you’re part of a larger organisation, leasing through your business will generally be a better option for both you and the organisation overall.

Benefits of leasing through your business

  • Business leasing deals often have more affordable monthly rentals than non-business customers.
  • Company car tax is often cheaper than personal car tax, reducing the running costs of the vehicle (if you lease vans or pick-up trucks, you’ll pay a fixed car tax rate as well).
  • You don’t have to pay 100 of the VAT on leasing rentals if your business is VAT registered.

Benefits of leasing your car personally

  • You can have more choice over your vehicle, and can upgrade your car every few years, depending on the terms of the lease.
  • Vehicle Excise Duty (road tax) is usually included in your lease.
  • You/your business doesn’t have to pay company car tax.

Getting Your Next Vehicle with LeaseCar

At LeaseCar, we like to keep things simple! Finding a finance provider or weighing up the pros and cons of hundreds of different finance deals all by yourself can be a nightmare-inducing process, which is why we do the work for you.

Simply browse our catalogue of vehicles to find the ones that are right for you, and we’ll sort everything else out on your behalf. All of our deals and vehicles are available to view and customise on the LeaseCar website, so you can tell us exactly what you’re looking for.

Once you’ve decided on the right car and deal for you, we’ll run the numbers. The LeaseCar calculator instantly gives you an idea of the type of leasing package that will work for you. Just input your preferred details and we’ll show you your full costs and monthly breakdown before you agree to the car lease:

  • Lease type
  • Lease length
  • Expected mileage
  • Initial rental cost
  • Maintenance plan

You can do this for as many vehicles as you like until you find the perfect package for you. Once you’re happy with the price, the lease details and the vehicle you’ve chosen, you just need to hit ‘order now’ and follow our easy steps to confirm your lease.

We’ll need a few personal details from you to prove your identity and let us know your circumstances. The details that we’ll need are:

  • Your full name.
  • Your date of birth.
  • Your marital status.
  • Your residential status (such as homeowner, living with parents, renting, etc).
  • Your address history covering at least the last 3 years.

For payment purposes and security and identification purposes, we’ll also need the details of the bank account that you’ll be paying your car finance rental from. This will include:

  • The account number.
  • The sort code.
  • Your branch address.
  • The name on the account (this must be your name).
  • A 3-year address history.

Another piece of information that we will need to proceed with the credit application is your employment details. This tells us you’re in regular employment and therefore have a regular income so you’ll be able to easily make your rental contributions every month. We’ll need:

  • Your employer’s name.
  • Your employer’s address, including postcode.
  • Employment history.
  • The details of all employers in the last 3 years.

You’ll need to provide a few separate identity documents as well to complete your online application. Having these 3 forms of identity reduces fraud and prevents criminals from being able to sign someone up for a lease agreement without their consent. There are 3 different types of identification that you’ll need to provide:

  • Driver’s license – we’ll need a copy of your driving license to confirm your identity, and to prove that it’s legal for you to drive a vehicle in the UK.
  • Proof of address – In most cases, you will be asked to provide two forms of proof of address (this can be a utility bill with your name on it or a bank statement).
  • Proof of income (this can be a payslip, accountant’s record, or even a bank statement – it simply needs to show that there is regular income into your account).

All that’s left to do then is for us to deliver your vehicle and you to get driving!

The friendly team at LeaseCar are available between the hours of 8:45 am and 5:30 pm from Monday to Friday and are on hand to answer any questions that you might have concerning any of our available cars and deals. Just give us a ring on 0344 745 1818.

Looking after your Vehicle with LeaseCar’s Maintenance Packages

No matter whether you’ve bought a car outright, financed it through a lender, or leased your vehicle, maintenance is something that you’ll need to consider when searching for a new car.

Regardless of how you’ve acquired your vehicle (whether you’ve bought it outright, on finance or are leasing it), maintenance is a cost that you will need to consider. A well-maintained car not just runs smoother, but is more affordable in the long term too. A good maintenance package can catch any issues well in advance and prevent costly repairs.

When you do run into car problems, it can feel like the end of the world! With LeaseCar’s range of maintenance packages, we can offer our drivers peace of mind that their vehicle is working at its best for the duration of the lease. We’ll also help protect you from the costs associated with repairs and part replacements, whether they’re caused by wear and tear, parts and manufacturing problems or a range of other issues!

LeaseCar’s maintenance packages can be applied to any of our regular lease plans for a small additional amount every month (which we’ll bundle with your regular lease rental so you’re only paying once every month). The LeaseCar maintenance package offers a range of useful features and benefits.

What do you get with a LeaseCar maintenance plan?

We provide a worry-free maintenance plan that allows you to keep moving 365 days a year. Our maintenance plans cover:

  • Scheduled servicing for all car makes and models.
  • Repairs and replacements for any mechanical or electrical parts.
  • Repair and replacements for wear and tear damage, including parts and labour.
  • Replacements and repairs for bulbs, batteries, exhausts, cam belts, wiper blades, alternators, and starter motors.
  • MOT tests.
  • Tyre replacements using premium branded tyres.
  • Free mobile tyre-fitting appointment services, available at a time and place that suits you!

All of this comes with an easy and efficient one-call booking system, so you don’t have to spend hours going back and forth with mechanics and service providers!

Breakdown cover for your vehicle lease

We also offer comprehensive breakdown cover to all of our customers, helping you feel confident and safe wherever you go! Our breakdown cover is available 24 hours a day, 7 days a week, 365 days a year, and also includes free breakdown cover in Europe! Whether you’re travelling for business or pleasure, LeaseCar has got you covered. With our breakdown cover, you can expect:

  • Both at home and roadside assistance, so you can feel confident they will be on hand whenever and wherever you need us.
  • An average attendance time of 45 minutes - they won’t be messing around when you need us!
  • Once your engineer is with you, you’ll either receive an on-site repair or recovery to your onward destination.
  • Onward travel is provided by us - we include airfares, trains, taxis and any accommodation you need to get you where you’re going.
  • Repatriation back to the UK, if you break down abroad.

While benefits and cover are available externally, and you’re welcome to partner with other maintenance and insurance companies to protect your vehicle over the course of the lease, there are many benefits to keeping your insurance, breakdown cover and maintenance cover bundled with your regular car rental fees:

  • It’s one fixed monthly cost.
  • You’re protected against inflation.
  • We work with approved garages.
  • VAT is 100% recoverable on the additional costs of your maintenance package.

Whether you're interested in learning more about our maintenance packages, or you'd like a quote on your coverage, contact the LeaseCar team today by calling our car leasing experts on 0344 745 1818 or by getting in touch on our website!

Insuring your

There are a few things to be mindful of when insuring a leased vehicle, as you are not the “first person” (the legal owner of the car). That’s why at LeaseCar, we offer a Total Cover package to help give our customers peace of mind and comprehensive cover on the road. Total Cover includes:

  • Third-party liability to protect you in case of damage to other vehicles or injury to other road users.
  • Own damage protection covers the cost of repairs to your vehicle in the event of an accident, fire or theft.
  • Glass damage protection for the repair and replacement of glass on your vehicle, including the windscreen, windows, and mirrors.
  • No financial gap on your vehicle in the event of a write-off - you’ll have a new car and be able to pick up your payments as before.
  • Guaranteed maintenance cover.
  • Breakdown assistance, including a replacement vehicle for the first 48 hours.
  • Accident management with a fast and efficient claims service.

Total Care allows you to have a comprehensive insurance package that protects you and other drivers from expensive issues on the road. The cost of Total Care insurance is also added to the regular monthly rental of your vehicle, so you can manage all of your vehicle costs in one simple package.

No matter what kind of coverage you’re looking for, we can point you in the right direction for a range of different breakdown, maintenance and insurance packages. To find out more, please get in touch with our team on 0344 745 1818.

How do Different Types of Car Leasing Work?

Within the world of car leasing, there are a few different types of lease available, including contract hire, finance leasing, and operating leasing. At LeaseCar, we specialise in contract hire leasing, specifically Personal Contract Hire (PCH) and Business Contract Hire (BCH).

Finance Leasing

Finance Leasing is a finance lease agreement where you can opt to pay lower monthly rentals, plus a final balloon payment at the end of the term, based on the anticipated resale value of the vehicle. Over the course of the agreement, the vehicle remains the property of the leasing provider. At the end of the agreement, the leasing company will sell the vehicle to a third party. Depending on if they make a profit or a loss on this sale, you may get money back, or have a larger payment to contribute at the end of the lease.

PCP Agreements

Personal contract purchase (PCP) agreements give you the option to purchase the car fully at the end of the term. While not technically a lease, PCP agreements are another way to more affordably spread the cost of a new vehicle over an extended period of time. Personal contract purchase agreements have slightly higher monthly costs, and a larger optional lump sum at the end of the term (called a balloon payment). If you choose to pay the balloon payment, you then take over ownership of the vehicle and it is yours to own at the end of the term. If you choose not to take the balloon payment, you simply return the car at the end of the term like you would with a PCH or BCH contract.

Hire Purchase

Hire purchase is not actually a lease agreement, as you own the vehicle from the outset of the payment term. You simply pay off the cost of the vehicle over time in a regular payment schedule.

Contract Hire - PCH & BCH Leasing

With PCH and BCH leasing (personal contract hire and business contract hire), the lease acts as a rental, and there is no option or obligation to purchase the vehicle at the end of the lease term, no balloon payments and no additional costs at the end of the term. A PCH or BCH contract means you will never own the vehicle outright. However, the monthly rental costs of this kind of contract are considerably lower than other types of leasing.

The Advantages of PCH and BCH Leases

Personal Contract Hire leases are simple! You don’t have to worry about different types of balloon or variable payments, and you always know what to expect when your car rental is taken every month.

Compared to other lease types, PCH and BCH leases are the most affordable options. Compared to other car finance options with the same vehicle and same terms, contract hire leases will almost always have cheaper monthly rental costs.

These costs are also fixed for the entire course of the lease, which allows you to budget your personal or business finances with complete clarity! Your monthly outgoings will always be the same on a contract hire lease - they won’t change based on inflation, usage or any other variable payment plans.

Contract hire also allows you to pick a new vehicle every few years when you end one lease and start another! As you return your vehicle at the end of the lease, taking out a new lease at the same time as your old one ends allows you to pick up the latest model of your car, or upgrade to something new entirely! With contract hire, you’ll never be driving a car more than a few years old.

This also means you don’t have to worry about your vehicle depreciating in value over time either. As lease providers, we take on all the management of depreciation with the vehicles we lease out.

All you need to do is pay your monthly rental amount and then return the vehicle at the end of the term. As you don’t ever own the vehicle, there can be no depreciation and so you won’t lose value on a personally-owned or company-owned asset.

As contract hire is the most affordable method of leasing, you’re able to get better and newer cars for your money compared to financing a vehicle or using a different leasing model.

There is also less administration involved in contract hire, as you never actually take ownership of the vehicle. Your car finance company will handle all of this internally, so you don’t need to worry about deeds or possession of the vehicle. We handle this for you throughout the entire course of your lease!

What happens at the end of the lease?

Just like any other rental, hand back the keys and you’re done!

This is one of the biggest advantages of car leasing - as long as you’re returning the vehicle in the agreed-upon condition, all you need to do is hand back the vehicle and your contract is over with nothing else to pay. There’s no need to sell your vehicle on or worry about depreciation!

There are stipulations on the condition and mileage of your vehicle when you return it which you’ll have agreed to at the start of the term. If you’ve gone over your mileage or the vehicle is not in the condition set out in your lease agreement, you will likely have some significant fines to pay to reimburse your car leasing company.

It’s recommended that you have your car professionally cleaned before handing it back at the end of your term and that any repair or maintenance issues are reported to the leasing company as they happen. You shouldn’t wait until the end of your term to raise any issues, as this might result in an expensive set of fees. Plus, with LeaseCar’s maintenance contracts, you can get any issues sorted as they happen!

After you’ve returned your vehicle, you can start a new car lease with a newer, upgraded model, or a completely different car if your needs have changed! Or if car leasing is no longer for you, you don’t have any leftover payments or contracts to worry about when buying or financing a new vehicle.

What Credit Score Do You Need to Lease a Car?

Your credit score is an important factor when it comes to a car lease. Credit scores are a useful metric for lenders that tell us how reliable you are as a leaseholder. Of course, credit scores are not the only metric we use, and if you have a lower credit score there are options available to you. However, if you’re looking to improve your credit score to lease a car, there are a few things that you can do to improve it, including:

  • Reducing the outstanding balance on any credit cards
  • Paying bills (including direct debits and standing orders) on time
  • Keep credit accounts open
  • Checking credit reports for errors

What happens if you miss a payment?

Missing a payment during any kind of payment plan can cause problems, so if you’re able to make your payments, you absolutely should do so. If you miss a rental on your car lease, there is a risk that your vehicle will be repossessed by the lender, as the vehicle is used as collateral against the lease.

Obviously, this is the worst-case scenario for most agreements, and there will usually be options available to work out a deal with your lender for making up the missed debt. This can take several different forms, such as lengthening your payment schedule to pay off the debt or raising your monthly payments.

Another major downside of missing payments on a car leasing agreement is the negative impact that it can have on your credit file. Missed payments on any finance agreement can negatively impact your credit score as well as remain on your file for quite a while, and the same is true for car leasing.

The long-term effects of missed payments on your lease can lead to a drop in your credit score, and in turn difficulty securing finance, credit or loans in the future.

However, this isn’t to say that a hire purchase deal is a risk for your credit. Car leasing can affect your credit score however you let it! If you are able to make and maintain payments regularly, you’ll actually see your credit score benefit from having a lease agreement on your file. By sticking to your rental plan, you’re indicating to lenders that you’re a trustworthy borrower and likely to pay back any debts efficiently and on time.

Is Leasing a Car Right for You?

Leasing is a great option and opportunity for many drivers looking for an affordable way to secure their next vehicle. Car leasing is a simple process and can have many benefits, but it’s not for everyone!

To find out more about how car leasing works, the kind of support that the LeaseCar team can offer you, or get started with your next vehicle lease, please don’t hesitate to get in touch! We’re always happy to help you and our leasing experts are on hand to answer any questions you may have about the process of leasing a vehicle.

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