Car leasing is becoming an increasingly popular option for drivers all around the UK. A combination of rapid car depreciation, tempting car lease deals and the opportunity to regularly upgrade appears to be an attractive deal for many.
A personal contract hire (PCH) is quite simple. You’re typically required to put a deposit down on the vehicle, followed by monthly payments over a set term (12-60 months). At the end of the agreement, you simply return the car for a newer version, and the process starts again.
A personal contract hire agreement is often more cost-effective than buying a car with your cash. The average car depreciation hits hard in your first year of ownership, losing around 15-35% of the total value. After this, you can expect that depreciation to grow to anything up to 50%.
It’s no wonder that more and more people are choosing a PCH deal. But, before you jump headfirst into a car leasing agreement, here are some important things to consider:
Do you get to buy the car once the deal ends?
Suppose you want to own the vehicle outright once the contract term ends. In that case, you’d be better off choosing a personal contract purchase (PCP) agreement. Rather than handing the car back at the end of the deal, you get the option to put down one lump sum that will make the car yours forever.
Many use a PCP as a type of loan to buy the car they want and pay it off gradually. If you wish to continue driving the latest models of cars, a PCH agreement is more suitable. Often, a car leasing company will give you the option to choose between a PCH and PCP agreement, and the term and repayment costs will differ.
Spend some time researching the best car lease offers, comparing them and weighing up the pros and cons of each before committing to anything.
How concerned should you be about the annual mileage limit?
Once you start receiving offers for your lease agreement, you will notice each comes with an annual mileage limit. It’s down to you to state how many miles you will require each year before the agreement begins. This can be difficult to assess, but you should make the best calculation possible to avoid extra charges on your contract.
Don’t worry, you will have a chance to extend this limit during the contract, but it’s more cost-effective to get it right from the start.
Why do you need an initial payment?
You can find leasing deals with no initial upfront costs, but the monthly repayments are likely to be much higher. You may also get the freedom to choose your initial payment. We recommend that you pay upfront with what cash you have to help minimise your monthly payments.
The lower your initial payment, the higher your monthly payments will be and vice versa.
No leasing company is expecting you to keep the car in perfect condition throughout your leasing period. Instead, you’re given a wear and tear allowance, but it can be confusing as to what level of wear and tear is acceptable.
The better the condition you return the car in, the less you will be charged at the end of your contract. You can check out the fair wear and tear guidelines before taking your lease to avoid any horrible surprises.
Do I have to pay an admin fee?
Typically, yes, but it should not exceed £250. The admin fee covers the leasing company’s costs for processing the paperwork associated with the contract and registering the car.
It’s best to know the fee beforehand so you’re not shocked when you notice it during the contract arrangements.
What happens if I miss a monthly payment?
Before taking out the lease, you should make sure that you can afford the repayments. That new Tesla Model 3 does look great, but don’t be tempted into an agreement you can’t afford.
Life happens, and sometimes unexpected events can hit your finances. Should you miss a monthly payment, you will be charged a late fee, the amount of which should be stated on your agreement. Setting up a direct debit to pay off your lease car is the best way to ensure you don’t miss a payment.
Should I look for leasing contracts from a BVRLA certified provider?
Absolutely, the best leasing companies are members of the British Vehicle Rental and Leasing Association (BVRLA). They are quality assured and they must abide by strict standards of integrity, transparency and honesty.
Going with a BVRLA provider will give you peace of mind and assure you that your contract is with a reputable business.
What about car insurance?
When taking out a car leasing agreement, you will be required to take out comprehensive insurance for the vehicle. This safeguards you and the company should the car be in an accident, get damaged or be stolen.
Look out for the option of GAP insurance, which will cost a little extra but covers the cost of a replacement car should your leased vehicle be written off. GAP insurance will provide you with a like-for-like vehicle, so you won’t have your 4×4 replaced with a hatchback.