A guide to personal leasing

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.

What is personal car leasing?

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.

What are the benefits of personal leasing?

• Predictable motoring costs. As your monthly payments are fixed, you know how much it will cost to run your car. Road tax is also normally included in the lease contract, and if you take out a maintenance agreement which covers you for servicing and repairs, you won’t run into any unexpected repair bills either.
• No risk of depreciation. When you lease a car or van, you effectively pay for the depreciation of the vehicle over your contract term. This means that it’s the finance company that takes on the depreciation risk, not you. You don’t need to worry about what the vehicle is worth at the end of the contract as you simply hand the car back.
• Drive a better car. Because leasing means you don’t own the vehicle, you only pay for the depreciation over the contract duration – not the value of the car. This means your monthly payments are typically lower compared to other forms of finance. As a result, you can lease a better model, trim or options pack.
• Reliability of the vehicle. Many of us have driven an ageing car and experienced regular mechanical faults, as well as enduring the dreaded MOT, where you know the bill is going to be high. Leasing a brand-new car means this won’t be an issue. If something does go wrong with the vehicle, you’ll be covered by the manufacturer’s warranty.
• Get yourself a great deal. There are plenty of leasing brokers in the market who offer some great deals. They’ll work with the finance companies, dealerships and in some instances even provide their own vehicle stock to customers. It pays to shop around and see what deal you can get on your next lease car.
• Avoid MOT costs. Cars and vans don’t need a MOT until they are three years old. If you take out a two or three-year leasing contract, you’ll avoid the hassle and the cost of a MOT.
• A low initial payment. For most leasing contracts you can pay as little as three months’ worth of rentals upfront, and then drive away your new car. So, on a personal lease of £200 per month, you’d only need to pay £600 to drive away with a brand-new car.

What are the restrictions I need to be aware of when leasing a car?

• If you exceed the agreed mileage allowance, you’ll pay a penalty for the extra miles you’ve incurred once the contract comes to an end. The amount you pay is based on a pence-per-mile cost and can vary depending on the vehicle. It’s important that you set a realistic mileage limit when you take out your contract and work out if it’s worth paying a bit more to increase your mileage allowance – from 8,000 to 12,000 miles per year for example – rather than paying the penalty.
• You must return the car in a good condition that falls within the BVRLA Fair Wear and Tear guidelines. The BRVLA (British Vehicle Rental and Leasing Association) is the rental and leasing industry’s governing body. Detailed information as to what constitutes fair wear and tear is covered in our wear and tear guide. As a rule, interior upholstery should be clean and tidy with only slight wear, while burns, tears or stains are not acceptable. If the vehicle doesn’t meet the fair wear and tear guidelines when returned to the leasing company, you’ll incur a charge.
• You can’t modify the vehicle in any way without permission from the leasing or finance company if the contract is directly with them.
• You may not be able to take the car abroad without permission from the finance company.

What’s the jargon?

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:

An Audi A3 Sportback, 30 TFSI 116 Sport 5dr car is advertised at £395.32 on a personal leasing contract at 9+35 with an annual mileage allowance of 10,000 miles. Here’s the breakdown:

Which cars are best for personal leasing?

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.

Am I eligible for personal contract hire?

There are certain criteria which need to be met to qualify for a personal car lease contract. These include:

• You must be a minimum of 21 years of age
• You must have a full UK driving licence
• You need to provide 3 years of employment history
• You need to be able to provide 3 years of address history
• You need to have a good credit rating. Your credit rating will be checked by the finance company to determine whether you can afford the monthly payments.

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.

How long does the credit check take?

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.

What are the different ways I can finance a personal lease?

There are several 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. 

What happens at the end of the contract?

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.