Car leasing may not be for everyone. It’s great for people who like new cars, new technology, and like to change their car often. It is very good for the budget conscious as the rentals are fixed, and when you take a maintained lease, everything is included except insurance and fuel so you don’t need to put your hand in your pocket when it comes time for servicing or maintenance.
As it is a longer-term hire of a car, but using a contract, you won’t own the car, so it’s not good for wheeler dealer types that like to chop and change their cars.
Is leasing available to me?
To lease a new vehicle, whether for a business or private car lease, you need to have a good credit rating as a minimum. Which is typical for any kind of credit when considering a new vehicle.
Although you are not buying the car, the lender (the leasing company that leases it to you) is buying it; as they make a significant financial commitment, all clients are given a full credit check to ensure they can meet the commitment. In our experience, most (but not all) lenders consider the lease’s total cost when considering an application against your monthly income and expenditure. Affordability here is key.
How long should I lease for?
If you are happy that your credit is in order and want to consider vehicle leasing, the next thing you want to think about is how long to lease for?
Most new cars come with a three-year warranty and won’t need an MOT until they are three years old, which is excellent, but what are your requirements? Are you someone who changes their car regularly, or could you keep a car for a long time?
One of the few drawbacks when leasing is that should you need to get out, you have to pay an ‘early termination figure’. This is usually around 50% of the remaining rentals. The good news is that you don’t have the hassle of selling a car and maybe have an even larger deficit to find, and it can be done quickly. Not only this but the longer you have the car, the smaller this sum will be.
It’s best to think about the long-term financial implications of leasing. Are you likely to stay with your current employer? Will you be able to maintain your rental payments? Consider a shorter lease if you can afford it and think you could have a change of circumstance, but if things are stable, a longer lease might suit you better.
What mileage should I choose for my lease agreement?
With personal or business contract hire, you are contracted for mileage. If you go over the agreed limit by the time the vehicle returns to the leasing company, there will be an ‘excess mileage’ fee to pay.
How to calculate your annual mileage.
We recommend you tally up your mileage weekly and multiply it over the year. Add to this any other trips you are likely to do like visiting friends and family or going on holiday. Then you shouldn’t be too far away. Most lenders will let you alter your mileage mid-contract, usually after year one of your lease and before the last six months. We will always include the excess mileage charges with every quote we provide, so you would know what to expect should you run over.
The flip side here is that you can overestimate your mileage too. Of course, this will mean no mileage penalties and the end, but you won’t get a rebate back, so it’s worth being as accurate as possible.
What should my budget be when leasing a new car?
With leasing, you have a total cost for the lease. This is broken down into initial and equal monthly payments for what is left. You can increase or decrease your initial rental to suit your circumstances. Initial sums can be altered in multiples of 3. See the examples below for a clearer idea.
Three-Year Lease Example A: Monthly Rental is £500
Initial Rental Payment 3 x £500 = £1’500
Monthly Rental Payment £500 = 35 Monthly Rentals x £500 = £17’500
Total Lease Cost (Not including any other charges) = £19’000
If you have more initial deposit, you may want to lower your monthly rentals to make your lease more affordable over the term, like the example below. The initial rental goes up, the monthly comes down, and the total cost remains the same. It’s also worth noting that some lenders alter the rentals to protect themselves from a lower initial rental as this increases their risk a little.
Three-Year Lease Example B: Monthly Rental is £404.25
Initial Rental Payment 12 x £404.25 = £4’851.06
Monthly Rental Payment £500 = 35 Monthly Rentals x £404.25 = £14’148.75
Total Lease Cost (Not including any other charges) = £19’000
Also, when we talk about payments, it should be ‘rentals’, or ‘rental payments’, as ‘payment’ implies you are buying something, and you are not! It’s a lease (a long-term rental), so really, it’s a rental payment.
Income and Expenditure
As part of a personal car leasing application from a car leasing broker regulated by the financial conduct authority, we’ll run through a monthly income and expenditure check with you. This ensures you have enough left over every month to afford your new monthly rental easily.
The idea is to keep your monthly rental payment manageable, as you will have fuel, maintenance (more on this later) and insurance to pay for.
How to choose the right car for me?
The exciting part! Now that you’ve established that you can and should lease and for how long, it’s time to consider what kind of car will meet your requirements.
As your car lease will last 2 to 5 years, you want to get it right.
The car will need to meet your space and lifestyle requirements.
Think longer-term when it comes to your size requirements. Might you get a dog, or could your work require you to carry a lot of equipment that needs a big boot? Or will your children leave the nest, and you no longer need a vast estate?
The most common mid-contract challenge we hear about is usually the pitter-patter of tiny feet! When a baby comes along, you will want to have ordered the five-door version of that sporty hatchback, or maybe even an SUV!
Time to switch to electric?
You may be considering an EV for your next lease car, and we would understand why.
When considering an EV, along with the usual lifestyle and size questions, you will want to consider the range of the car, and what charging facilities you will use, whether at home or out and about locally. There are many different options and plenty of charge points opening nationally almost every week.
Who is responsible for maintaining my leased car?
Your new car will require looking after, like any new car.
When you take it maintained (known as ‘lender maintained’), you will pay extra for your rental every month. But your car’s routine servicing, maintenance (think wipers, bulbs, exhausts (if it has a fossil engine) or brakes), MOT tests, and tyre replacements are all handled by the finance company.
Some lenders will even cover tyres for punctures also. Often you can have full breakdown recovery for when the manufacturer’s cover runs out, twenty-four hours a day for home and roadside.
Most leasing companies have dedicated maintenance hotlines or customer portals. You can go online or quickly call to book your car for servicing or warranty work, and they handle the rest. This is especially good when you’re dealing with a faulty vehicle and need assistance quickly.
Lastly, a maintained lease agreement is fantastic for the budget conscious as really all you have to worry about is insurance and fuel (or electricity). With increasing costs everywhere, it’s good to lock today’s hourly rates and parts prices in at the beginning and for the length of the lease.
If you go down the non-maintained route (known as ‘customer maintained’), servicing, maintenance, and tyres, along with the insurance and fuel, become your responsibility. Of course, your new car will still come with the road tax included, full manufacturer’s warranty as standard, and it won’t require an MOT until it’s three years old, which is worth bearing in mind if you are a lower mileage user.
What other fees or charges do I need to know about when leasing a brand-new car?
You must understand your liabilities and the agreement’s limitations when entering a new lease contract. This ensures that you can make an informed decision and that there are no surprises. Car leasing, in lay terms at least, is straightforward. You pay a pre-agreed sum for using a car for a fixed period, then hand it back at the end. Easy. Of course, it is more involved than that.
Excess Mileage Charges
As discussed above, the agreement has mileage limits that could result in additional fees; hence it pays to be as accurate as possible.
You won’t own the vehicle during or after the lease, as it belongs to the lender. This means that when you return the car, the car’s condition must meet specific criteria. Most lenders issue their own standards, but most adhere to the British Vehicle Renting and Leasing Association (BVRLA) Fair Wear and Tear Standard.
This sets a clear and concise standard of expected wear for the end of your lease. If your car falls within the guidelines, you won’t be charged anything when the vehicles return. Some lenders can produce a price list of damage recharges; this is useful for working out if you should repair your car before sending it back.
Credit Brokering Fee
When using a leasing broker, you may be charged an upfront fee when approved for credit.
This is to pay for the service, where a hand-picked panel of leasing companies in the marketplace are analysed to find the best possible leasing package for your newly leased car.
Early Termination Fee
As mentioned earlier in the article, should you want to get out of the contract before the endpoint, you will need to pay the lender an ‘Early Termination Fee’. Typically this is around 50% of your remaining rentals from most lenders, but it can differ and can depend on when you are looking to terminate the agreement.
So there you have it, our top things to consider when leasing a new car. From the contract length to the kind of car and all the associated costs, we hope you can be more confident about the leasing process and better understand what a new car lease agreement might mean for you.