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How does car leasing work?

How does car leasing work?

By Swansway Motor Group 04-06-2018


If you're not a numbers whizz or confident when dealing with figures, fiance, policies and products, read this step by step explanation of car leasing.

How does car leasing work?

To those of us who are not accountants or particularly confident when dealing with financial policies and products, the finer details of car finance can be off-putting, confusing and let’s face it, sometimes just a little frightening.

How do you know that what you’re signing up to; and is one way of getting a new car really any better than another?

You may have heard people saying what great deals they’re getting by leasing, with cheaper monthly payments putting them behind the wheel of a higher spec’d car or leaving more money in their bank account.

Calculator surrounded by money, notes and coins

But, is that really true; what is leasing and will it suit you?

When you lease, you’re paying to use, not to buy, the car; so, you never own the car.

That’s the important thing you have to decide on; do I want to own a car, which will depreciate in value, or do I want a new car every 2 to 4 years? If the answer is that you want to own the car, then leasing is not for you.

If you like driving a new car, keeping up with technology and get bored driving the same car for years, then leasing is something you need to look at.

Red toy Audi A1 in a hand with car keys dangling from it

How does leasing a car work?

You’ll pay an initial rental, which is normally 3x or 6x the agreed monthly payment; so if your monthly payment is £200 then your initial rental payment will be £600 to £1,800, dependent upon the lease contract you’ve chosen.

You choose a contract length from 24 up to 48 months; choose your expected annual mileage and off you go.

What about servicing or if the car needs repairing?

Whilst you have the car, you should service and maintain it just as you would if you owned it, following the manufacturer’s service schedule, just as you would if you were buying the car.

At the end of the contract, you hand the car back and walk away with no obligations, subject, of course, to you keeping within the agreed annual mileage limit and the car being accepted with fair wear and tear.

I’m still not sure; will I save money?

Everyone’s financial circumstances are different and no-one can tell you whether leasing will save you money or not, but if you like to change your car regularly, then it’s definitely worth investigating leasing.

Think of it like this:

Tom and James are twins, Tom bought his house and James is in a rental property.

Because of the UK housing market historically always appreciating in value we all think Tom is the ‘sensible’ one, because the value of his property will rise and he’ll make money on his investment.

Most of us will think James is ‘throwing money away’ by renting and should be saving madly for a deposit to get on the housing ladder.

Colourful plastic toy house

The exact opposite is true when looking at cars; they decline in value significantly during the first year and continue to lose value year on year.

Tom bought his car on a hire purchase agreement; James leases his and is just about to change for the very latest model.

Tom has just discovered that his car is worth quite a bit less than he thought in part exchange for a new one. Remember, by the end of three years, a car will, on average, have lost 60% of its value. So if the car was £15,000 new, by the end of the third year its value has fallen to £6,000.

Tom’s car is now worth £6,000 and don’t forget Tom paid more than £15,000 for his car; he paid the interest on his hire purchase agreement too.

Most of us will probably think that James is the smarter twin in this scenario.

Old toy car with a sunset background

To lease or not to lease?

Only you can decide the best way to finance your next car; just remember that the market now offers a much wider variety of ways to drive a new car, so, think carefully about your lifestyle, what you want your car for and how long you’ll keep it before changing.

Keep your options open.

Get a Leasing Quote  Contact Your Local Dealership


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