Car Leasing UK

Leasing a car is an effective long-term rental. You pay a fixed monthly fee to use the car for an agreed time period and number of miles. It’s a bit like renting a flat – you can treat the car like yours but you won’t actually own it. In any case, the finance company will carry out a credit check before agreeing to a contract. You’ll also need to arrange your own car insurance for a leased vehicle as financing companies will likely insist you have fully comprehensive cover rather than just a third party option.

That being said, when it comes to finding your contract there are two main types of agreements to consider; Personal Contract Hire (PCH) and Personal Contract Purchase (PCP).

PCH is the most common form of car leasing and usually has both lower deposit requirements and lower monthly payments when compared to PCP. With a PCH deal its normal to pay three, six or nine months’ rental in advance, followed by monthly payments for the remainder of the lease, which tends to be between two to five years.

When you see PCH deals advertised you’ll see a monthly price followed by something like 3+35. The first part (the 3) refers to the initial payment you pay at the beginning of your lease. If an offer is advertised as 3+ it means you pay 3x whatever the monthly payment is. The second part (the +35) refers to the length of the contract. So, after the first month, this is how many months the contract will last.

A deal will also include the maximum annual mileage you’re allowed to drive in the car. If you exceed this figure, you’ll penalty will incur. The higher the mileage limit you choose at the outset, the more your payments will be. and of course, at the end of the term, you have to return the car back or sign a new lease.

Personal Contract Purchases(PCP) works in a different way, instead, you’ll pay a deposit (roughly about 10% of the car’s value) and then monthly payments. At the end of the term, you’ll have the option to buy the vehicle for an extra payment commonly referred to as a ‘balloon’ payment. The leasing company will determine this figure at the outset of the lease and is called the minimum guaranteed future value (MGFV) and could be a few hundred or even a few thousand pounds depending on the car and your monthly payments will be based on an estimate of how much the car will lose in value through depreciation between the start and end of the contract.

When the contract ends, you have the option to either hand the car back to the dealer without making the balloon payment or pay the balloon payment and keep the car.