Personal Car Leasing Explained
If you have never leased a vehicle before and want to learn the process, please read on to learn everything you need to know. If you have any further questions, please get in touch with our experienced, friendly and professional team on 02392 245570.
For less than a monthly bank loan repayment, you can afford to drive a brand new or nearly-new vehicle with the latest in-car and safety technology without having to invest a significant amount of your finances in one go. You could end up driving a BMW Series 1 instead of a Vauxhall Corsa with ease.
You also don’t have the same worries about depreciation compared to if you purchased a vehicle outright. According to the AA, the average car loses around 60% of its value after three years.
What is Personal Contract Hire Leasing?
By leasing a car or van, you’re essentially renting it for an extended period, typically from 2 to 4 years.
Throughout the personal or business contract hire lease, the car remains the property of the finance provider, and their name would appear on the V5C registration document.
At the end of the lease, the car is returned to the finance provider. You don’t get to purchase the vehicle at the end of the contract hire.
You can lease a nearly-new or brand new vehicle and choose the vehicle’s make, model and the specifications you want, such as the in-car technologies, colour, trim etc. and then have the car delivered free of charge to your door.
Once you’ve agreed how many miles you will drive annually, you pay an initial deposit and then make fixed monthly payments for a set period, generally from 2 to 4 years.
Personal Vehicle Leasing is becoming more popular
Leasing a vehicle is becoming a popular choice for personal and business customers in the UK. Research from the British Vehicle Rental and Leasing Association revealed in 2019 that more than 5 million leased cars on UK roads, an increase of 14%.
What are the key advantages of leasing a vehicle?
• We can help you manage your costs by analysing your particular needs upfront and state which is the best finance option for you to go with
• With an initial lower upfront cost, you’ll have more available cash for your business or to boost your personal budget
• You don’t have to worry about the cost of depreciation during the leasing contract
• Pick from a vast range of new or nearly-new vehicles; the choice is yours
• Driving a new or newly-new vehicle will give you access to the latest safety and in-car technology, which is evolving at a fast rate
Why should I lease a vehicle instead of purchasing one outright?
• With Personal Contract Hire, the monthly payment is lower than if you took out a bank loan
• You have the option of driving a new vehicle every 2 to 4 years, taking advantage of the latest safety and in-car technology
• No hassle or expense in having to sell the vehicle; you hand it back at the end of the contract
• Manufacturer’s Warranty is included, as is road tax and breakdown cover
• Leasing is more suitable for your budget as you pay less up-front and you have fixed monthly payments during the length of the contract
• You worry less about the vehicle depreciating in value as you don’t keep it once the contract has ended
• Good tax benefits if you lease a car through your business
Please also see our 'Top 10 reasons for leasing a car' article'
How does car or van leasing work?
Personal Contract Hire is effectively a long-term car rental. With this leasing agreement, you agree to hire a vehicle for a set period, typically 2 to 4 years, and you also pre-agree on what your annual mileage will be each year of the contract.
You pay an initial deposit which is usually 3, 6 or 9 months worth of rental payments, followed by monthly fixed rental payments over the length of your contract. The higher the deposit you make, the lower the monthly repayments will be and vice versa.
It is essential to know how the finance provider calculates the rental payments.
The finance provider works out the ‘residual value’ of the vehicle, which is the value at the end of the contractual period once depreciation is taken into account.
To calculate the payments, the finance provider deducts the estimated residual value from the vehicle's retail price, leaving you to pay the difference in monthly instalments.
At the end of the contract, you return the vehicle within the agreed mileage and within a state which meets the BVRLA’s fair wear and tear guidelines.
Who is eligible for Personal Car Lease deals?
Almost anyone is eligible for Personal Contract Hire leasing.
At Fleet UK, we have access to a wide range of financial providers, each has its own eligibility criteria, but generally, they look for the following:
• You have a regular and secure income
• You can provide at least 3 years employment / education history
• You have not been declared bankrupt, nor have CJJ’s or IVAs against your name
• You hold a British Passport and hold a full UK Drivers Licence
• You should be on the electoral role at your current address
• Be successful with your credit application
Which cars and vans are available to lease?
We can supply pretty much any manufacturer or model that you want!
You can view the range of cars or vans below. If you don't see the model you want, please call us on 02392 245570 and we can quote you for the vehicle you would like to lease.
What is Personal Contract Hire?
One of the primary forms of leasing is Personal Contract Hire, which has long been popular in the US, although it is now rapidly growing here in the UK.
Personal Contract Hire is probably the most popular leasing product for individuals looking to control their financial budget through an affordable fixed monthly cost. You can also include a maintenance option to cover extras such as servicing and maintenance to give you extra peace of mind.
With Personal Contract Hire, the finance company risks how much the vehicle will be worth at the end of the contract – meaning no unexpected surprises for you.
At the end of the leasing agreement, you do not have the option to purchase the vehicle. Instead, the car is returned to the finance provider. However, this allows you to lease a brand new vehicle and take advantage of the ever-evolving in-car and safety technology.
What are the benefits of Personal Contract Hire?
• Monthly payments for a comparable vehicle tend to be cheaper with PCH and with PCP
• You’ll have access to cars you may not be able to afford outright
• You don’t have to worry about depreciation and reselling
• There’s nothing to pay at the end if you haven’t exceeded your mileage and there’s no damage to the vehicle
• You can add maintenance packages to your agreement, removing any worries about servicing, MOTs and tyre life
What is Business Contract Hire?
Business Contract Hire is one of the most popular funding methods for small to medium-sized businesses and one of the simplest.
A VAT registered company hires the vans or cars they need for a fixed term, selecting an annual mileage allowance for a fixed monthly rental fee.
Similar to a Personal Car Hire contract, a deposit needs to be paid before the lease starts, and the length of the contract can range from 1 year to 5 years, although 2 to 4 years is more usual.
The annual mileage limit needed is often higher on a business lease than a personal one because company cars tend to be subjected to lots of motorway miles. Generally, the maximum is 30,000 miles a year, but this can vary on different deals.
What are the benefits of Business Contract Hire?
• Fixed monthly payments to help control your budget
• Recover up to 100% of VAT costs (if business use only)
• Include your maintenance costs
• Don’t have to worry about depreciation risk
Visit our 'Business Contract Hire' guide for more information.
What is the difference between Personal and Business Contract Hire?
Business car leasing is only for VAT registered companies and is used by working professionals who need a car for work purposes. The finance agreement is in the company's name and its director, who is responsible for paying for the vehicle.
Personal leasing is for private individuals who want to use a car for any means, including both private and work journeys.
The critical difference between the two is that business leasing has cheaper monthly payments. This is because VAT registered companies can either claim back 100% VAT on the rentals for the car, providing the vehicle is used for business purposes only, or the business can claim back up to 50% VAT if the car or van is used for personal and business reasons.
However, that being said, a VAT registered business might pursue a personal lease, because sometimes with a business lease, you might pay more company car tax than what you can claim back in VAT.
Do I pay monthly?
Yes. You pay an initial upfront deposit followed by fixed monthly payments.
You can choose to pay a smaller or larger initial deposit, but the typical initial amount is equivalent to three to six-month payments. By paying a larger initial payment amount, you will have smaller monthly rentals to make.
You can select which contract length best suits your circumstances, but the typical length of the contract is between 2 to 4 years. The leasing period, in most cases, will have an impact on the monthly cost. Usually, the longer the lease period, the lower the monthly leasing cost will be.
It may seem logical and more attractive to go for a more extended leasing period to keep the monthly costs down, but please bear in mind this increases the likelihood that the vehicle will require maintenance. You should check if the manufacturer’s warranty is valid for the full length of your contract.
Is the mileage limited?
When ordering the car, you will specify your annual mileage, which affects your monthly payments.
The higher mileage you select, the higher the payments will be.
Should you exceed your agreed mileage, you will have to pay an additional cost per mile (excess mileage charge).
To avoid this, please ensure you make as close to an accurate prediction as to how many miles you think you will travel each year. Try and gauge what mileage you have done in each of the last 2 to 3 years as a guide.
View our 'Excess Mileage Charges' guide for more information.
What's included with a car lease?
• Free UK mainland delivery to your door
• Road tax
• Manufacturer's Warranty
• Breakdown Assistance
How does Personal Contract Hire differ from Personal Contract Purchase (PCP)?
Unlike PCP, there is no interest charge on your personal contract hire payments. You are simply paying the depreciation on the car. And at the end of a personal contract hire lease, you are not having to haggle with a dealership over the final versus the estimated value of the vehicle or having to negotiate a part exchange with the dealership on your next vehicle or buying the car outright.
Fleet UK operates as an independent vehicle broker. Unlike manufacturer dealerships, Fleet UK works closely with finance companies and manufacturers to get some of the best leasing deals on all leading car, and van makes and models. Furthermore, customers can lease a car from the comfort of their own home without visiting a dealership.
Can I part-exchange my current vehicle?
Fleet UK offers you the opportunity to part exchange your existing vehicle, which you can use as a full deposit when leasing any of our cars.
We will offer you a competitive and fair part ex value so that you don’t have the hassle or worry of trying to sell your vehicle privately.
Want us to quote you for the value of your vehicle? Click here to obtain a quote.
Do I need to buy insurance for my leased vehicle?
Just like when you purchase a car, you will need to arrange your own insurance for the vehicle. However, it would be best if you considered taking out GAP (Guaranteed Asset Protection) insurance. GAP insurance is a form of optional vehicle cover you can choose when leasing a car.
Essentially, a GAP insurance policy will bridge the difference between your insurer’s payout and the finance owed on your lease car if it’s declared a total loss or if the vehicle is stolen.
Leading insurers of a lease car will only offer a settlement figure that reflects its worth when it’s declared a total loss. So, you can often be faced with a financial shortfall to cover the remaining cost of your agreement, which is where a GAP insurance policy can come in handy.
You won’t be required to take out a GAP insurance policy by the finance provider of your chosen lease deal. However, it can give you added peace of mind during your agreement if you’re worried about being charged extra for the vehicle in the worst-case scenario.
Is my leased car covered by the manufacturer's warranty?
In most cases, it will be, but this will depend on the length of the leasing contract and as well as the length of the manufacturer’s warranty.
If the car develops faults during the lease, you should arrange for the vehicle to be looked at by a manufacturer-approved garage. If the warranty covers the defect, the car will be repaired by the garage accordingly. However, the manufacturer’s warranty may not cover faults developed due to neglect or misuse, and in those cases, you would have to pay for the repairs.
Please note that manufacturer warranties tend not to include consumable or “wear and tear” items such as tyres, batteries, windscreen wipers, brakes and clutches. Therefore, it’s likely you would have to pay for replacements of these parts if they fail because they have worn.
Car or van manufacturer warranties vary between brands and sometimes between individual models in a range. Typically you should expect the cover to last for at least three years or 60,000 miles, whichever it reaches first. Some carmakers provide a more extended warranty period. For example, Hyundai, Toyota and Mitsubishi provide five-year warranties, whereas Kia offer a seven-year warranty!
What about the MOT?
The great thing about leasing a new or nearly-new car is that vehicles don’t need an MOT until they are three years old. So if your leasing contract is less than three years old, the car probably won’t need one. But if the lease is more than three years it will require one.
If your lease is precisely three years, check the car’s registration date on the V5C. Why? Well, the vehicle more than likely will have been registered a short time before it was delivered to you. It will probably need an MOT before it goes back to the finance provider, even if there’s only a few days in it.
Who would be the registered keeper on the vehicle's V5 document?
With personal contract hire, the vehicle's registered keeper would be the finance company, and they retain the logbook. With PCP, the V5 document is in the customer’s name.
What happens at the end of the contract?
The BCA (British Car Auction Ltd) will arrange to collect the vehicle at a convenient time on the day the lease expires.
Either on the day of collection or before its collected, the BCA will inspect the vehicle for damage and faults, and the mileage will be checked to ensure it hasn’t exceeded the mileage limit, which if it has, you would have to pay a penalty fee.
For more information on the excess mileage charge and how you might be able to avoid it if you think you’re going to exceed the agreed limit, visit our ‘Excess Mileage Charge Guide’.
Before the car gets towards the end of the contract, Fleet UK recommends that you:-
• Check over the vehicle to ensure it’s returned in the best possible condition
• Make sure all the necessary documentation is in the car
• Ensure the car is cleaned inside and out
Please see our detailed 'End of Contract' guide for the process you should follow towards the end ofyour contract.
Can I terminate the car leasing agreement early?
You can terminate a car leasing agreement at any time, but depending on how much has been repaid, and how your payments are structured, the financial penalties could be severe.
If you are struggling to meet your payments, you should inform your finance company straight away, as they may be able to help.
At Fleet UK, we can also build your early termination fee into your new car contract, allowing you to spread the payments over your new contract agreement.
Who are the BVRLA?
The BVRLA was registered in 1967 and is a UK trade body for companies engaged in vehicle rental, leasing and fleet management. As a BVRLA member, Fleet UK can reassure you that we adhere to the highest standard of professionalism and fairness.
When your vehicle is inspected for damage by the BCA (British Car Auctions) at the end of your lease, they will follow the BVRLA’s guidelines on what’s considered fair wear and tear.