Quick introduction: How car leasing works

10-05-2018

More and more car buyers are choosing to lease new vehicles rather than buying them outright or using an arrangement like hire purchasing.

When you lease a car, you pay a deposit and a series of monthly payments – typically for between two and four years.

It’s a bit like renting a home instead of buying it. You take care of it for a long period and treat it as if it were your own, but at the end of the rental agreement you hand the keys back to the leasing company and get a new agreement at the end of the deal.

The amount you pay is based on factors like how many miles you drive each year and how long you want to lease the vehicle for.

Leasing a car lets you drive away in a completely new car, without steep upfront costs.

New cars typically lose a significant chunk of their value early on. But you don’t need to worry about this because you don’t own the car.

You can also avoid extra charges like road tax, the cost of an MOT certificate and maintenance. But you have to make sure that the car is brought back in good condition.

Benefits and drawbacks

Benefits

  • More car for your money
  • Drive away in a new car every few years
  • Maintenance costs can be included

Drawbacks

  • You don’t own the car
  • Monthly cost is based on mileage
  • The car must be returned in good condition

Cost and ownership

Costs are a concern for businesses and individuals alike. Leasing is a cost-effective way of getting access to the best new cars.

Leasing deals are normally structured between two and four years, with one initial deposit payment followed by a second smaller payment every month.

Car leasing deals are sometimes expressed as two numbers – such as ‘9 and 35’ or ‘6 and 47’. This means that there will be a set price per month, and the deposit will be 9 times the set price followed by 35 months of payments – amounting to a deal that spans 36 months.

Although you make payments for the car, you will not legally own it. It’s owned by the leasing company and you will have to give it back after the agreement expires.

This is great if you want to get a new car as often as you get a new mobile phone. It is also good if you’re worried about getting an unreliable car. Newer cars are less likely to breakdown anyway. And if something does go wrong, the car is likely to be covered by a manufacturer’s warranty.

Your lease will be covered by exactly the same warranty as if you went to a dealership showroom and bought the car outright.

Most manufacturer warranties last at least three years, so there is a good chance that the warranty will cover your leasing agreement.

If it is then you will be able to get all non-consumable parts replaced for free.

Tax, insurance and other running costs

Road tax

Most lease agreements will have road tax included in the overall price. All you need to pay is the deposit and the monthly bills.

MOT

Cars don’t need an MOT certificate until they reach three years old, so most leasers won’t pay for an MOT either.

Breakdown cover

Many lease agreements include breakdown cover as standard or as an optional extra to put your mind at ease.

Insurance

You have to purchase insurance separately, and most finance companies require you to buy fully comprehensive cover. But the insurance should not cost anymore than if it was on a non-leased car.

Maintenance

It is your responsibility to get your car serviced in line with manufacturer recommendations. Many lease agreements include maintenance packages as standard or as an optional extra.

Delivery

Most leasing companies will drop-off your car at the start of the agreement and pick it up when its finished. All for free.

 

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