Knowledge Bank

What is vehicle leasing?

A leasing deal is a long-term vehicle rental agreement that lets you spread the cost of driving a new car. You pay for your vehicle via monthly rentals over a fixed term. It’s different from other forms of car financing in that you don’t (usually) own the vehicle outright, instead, you hand the car back to the finance company at the end of the contract.

Leasing a car or van is the same as renting anything else. A good comparison is if you’re renting a house/flat. You’ll pay a deposit, then you’ll have use of the property as long as you pay the agreed price set by the landlord for the duration of the rental contract. Once that contract ends, the property reverts back to the landlord.

With a car lease, instead of a deposit, you pay an initial rental which is equivalent to 3, 6, 9 or 12 times the agreed monthly rentals. Rental periods are usually two to four years, so you’ll pay a fixed monthly amount to rent the car for that period. At the end of the contract, the car goes back to the finance company. There will usually be contract stipulations around annual mileage (always overestimate when agreeing your deal) and any damage that falls outside the specific ‘fair wear and tear’ policy.

Who can lease a vehicle?

Leasing is open to anybody who is over 18 years of age, with monthly income and residing permanently in the UK. Having said that, each funder will have their own set of underwriting criteria that needs to be met to get a credit acceptance. Some of the considerations that may affect you include; lack of funds/affordability, not being registered on the electoral roll or a short address or employment history (i.e. not having been at an address/in employment for long).

Personal lease

Personal Contract Hire: Probably the most common form of personal car lease. You’ll pay a fixed monthly rental over an agreed period. At the end of your contract the vehicle will revert back to the finance company. This is a great option for those looking for fixed cost motoring.

Personal Contract Purchase: With a personal contract purchase (PCP) you’ll pay a fixed monthly fee over the agreed contract length. However, unlike leasing, at the end of the contract the disposal, purchase or sale of the vehicle is solely your responsibility under the agreement.

Business lease

Vehicles can be leased to any type of business, from a sole trader right through to a multinational limited company. The same considerations are applied to any company, regardless of size.

Please be aware, the finance house may request to view your accounts, bank statements and other financial information to get a true picture of how your company is performing. Different finance companies have different criteria which they look at when assessing a company so you should ensure that you are comfortable with the overall strength of your company prior to applying.

Finance lease agreement: This type of lease can work well for businesses as it can be shown as an asset on your balance sheet, meaning you can get VAT benefits. You can choose to either pay the cost of the vehicle, plus interest, over a contract period, or you can usually lower your monthly rental payments by adding a final balloon payment at the end.

Find out more

Learn more about the benefits of personal car leasing and business leasing, or start looking for your next vehicle today.

If you are unsure about whether leasing would be suitable for you, call us on 01606 545 900 and our friendly, UK-based team will be able to offer impartial advice.

Lex Autolease
Leasing Broker Federation

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