Vehicle Leasing Explained

19 June 2019
[ 5 min read ]

Leasing allows you to use a car or van for a set amount of time, covered by monthly payments, a useful form of vehicle finance if you know that you don’t want to own the vehicle at the end – think of it as a long-term rental.

You’ll agree to pay an initial rental, the lease term, mileage limits and monthly payments, once the period is up, you’ll return the vehicle.

As an example, a 6+23 agreement means that the length of the agreement will be 24 months but the initial rental – only the month 1 – will total the monthly rental times 6. As an easy figure, with a monthly rental of £100, the first month you pay £600 and the subsequent 23 months, you pay £100 each month.

The initial rental and monthly payments are often cheaper than other forms of finance which means you can sometimes afford a nicer vehicle.

However, it is important to remember that at no point do you own the vehicle. You will be expected to stick to the agreed mileage limits and return it in good condition. We will now show you how it works as well as the pros and cons of leasing a car or leasing a van.


How does leasing a vehicle works?

Once you have picked the car or van you want to drive, you simply need to click on the Enquire Now button available on that same vehicle page.

We will then confirm with you the initial rental, the monthly payments, the term length of the lease, mileage limits and any extras you want on the vehicle in order to generate the quote for you. At this stage, you can rest assured, you are not committing in any way with anything.

Only when you are happy with the provided quote we will then submit your application for finance to one of our funders for assessment.

It is important you do not underestimate these limits!

If you go over the agreed mileage when you return the vehicle, you’ll be charged according to the stipulated excess mileage cost defined on your agreement.

At any time during the course of your finance agreement, if you predict to go under the estimated mileage, we will be more than happy to resubmit to the funder a mileage update and therefore most likely help you to reduce your monthly payments.


How are the leasing costs calculated?

Your payments will be based on a number of factors:

  • The value of the vehicle
  • The length of your lease (anywhere between 2 years up to 5 years – the longer the term, the lower the monthly payments will be)
  • Your agreed mileage (the more miles, the more the monthly rental will cost)
  • The depreciation – the amount of value the vehicle will lose over the term of your lease

It is vital that you review the payment plan you are signing up to and you need to be certain that you’ll be able to keep up with the payments agreed to.

If you fall behind the payments, you may be charged extra, have the vehicle repossessed and this will negatively impact your credit score.


Business Contract Hire vs Personal Contract Hire

Two of the most common forms of vehicle leasing are personal contract hire (PCH) and business contract hire (BCH).

PCH is when an individual takes out a lease on a vehicle.

BCH involves a vehicle being leased through a registered company – this can range from a multinational to a sole trader.

Both PCH and BCH options work in much the same way: a vehicle leased over a set period of time after a deposit, covered by monthly payments.

However, leasing through business may mean that you can reclaim a portion of the VAT, but remember that this only applies to miles driven for business purposes.


The benefits of leasing

  • Flexibility over lease length and mileage
  • Smaller initial rentals than other forms of vehicle finance
  • Lower monthly rentals than other forms of vehicle finance
  • No interest payments
  • Road tax, vehicle maintenance and breakdown cover can be included in your monthly rentals


The drawbacks of leasing

  • There are mileage limits
  • The vehicle must be kept in good condition
  • You do not own or have the option to buy the vehicle at the end of the lease


Does leasing a vehicle require a credit check?

The lender will most likely run a credit check against you. If you’d like to know how lenders may be viewing you, check your Credit Score in advance, there are a few companies out there that provide access to your credit score for free – simply type "free credit score check" on the browser and you will be given plenty of options.


Does leasing a car or leasing a van affect credit score?

Yes, for good and for bad, unfortunately.

On the good side, if you stick to the terms of the lease and make all payments on time, this could have a positive impact on your score.

But on the opposite – if you go into default – your score could fall, making it harder or more expensive if you want to finance a vehicle in the future.


Is it better to buy a vehicle or lease a vehicle?

This is completely down to your circumstances or personal preference.

If you want a low deposit, low monthly payments and don’t want to own the vehicle at the end, leasing could be the option for you.

On the other hand, if you really want to end up with a vehicle that is yours, and that you could sell in the future, you should consider another more suitable financing option such as hire purchase.

If you are still unsure and want to check for other options, read our guide on the different types of vehicle finance.

Whichever way you choose to spread the cost of your new wheels, it’s a good idea to check your credit score and report. You’re more likely to get offered more favourable rates the better your score is, so it’s worth getting your credit score in shape before making any applications to help secure the best deals. Read our guide to get tips on how to improve your score in 4 steps.


If you have any queries feel free to give us a ring on 01424 863 456 or drop us one email on [email protected].


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If you need help give us a call on:

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0121 314 2364

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We work in partnership with many of the UK’s leading van leasing, car leasing, contract hire and finance leasing funding companies in order to provide the most competitive rates and offer you the best leasing deals possible. Our guide to eligibility will help you understand the various requirements for establishing a vehicle finance agreement.

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