What is car leasing?
Car leasing is usually a long-term rental agreement of two, three or four years. It is a popular and often cheaper alternative to buying a car outright or via dealer finance.
At the start of the leasing contract, you pay an initial rental, usually equivalent to one, three or six monthly rentals, followed by fixed monthly rentals for the remaining term of your contract.
At the end of the lease contract, you simply hand the car back to the finance provider, leaving you free to take another lease car should you wish.
You can read more about car leasing in our How Car Leasing Works guide.
Is car leasing a good idea?
Car leasing is a popular choice with customers who want the advantages of driving a new car, without breaking the bank.
Car leasing is often considered cheaper than buying a new car via a bank loan or dealer finance. However, unlike a purchase style agreement in which your monthly payments contribute to the cost of the vehicle, with a contract hire lease agreement your monthly rentals cover the cost of the depreciation of the vehicle over the lease period.
As you never own the vehicle, you can also enjoy all the benefits of driving a brand new car, such as reliability and technological advancements, without worrying about losing value over time.
Is car leasing a bad idea?
Of course, car leasing isn't for everyone, which is why it is important to weigh up the pros and cons of car leasing before making a decision.
If you are a new start business which has been trading for under two years, or if you have a poor credit rating, you may not be eligible for car leasing. This is because most finance providers ask for a good to excellent credit score to be accepted for vehicle finance. This is because lenders prefer lending to established borrowers who can better assess the risk of paying back debt.
With a car lease deal, you also must be willing to stick within pre-agreed perimeters, particularly regarding vehicle mileage and fair wear and tear, to avoid costly de-hire fees at the end of your contract.
Is it better to buy or lease a car?
Like all big decisions, whether it is better to buy or lease a car comes down to your personal preferences and circumstances.
If you're looking to drive a brand-new vehicle at a low price and don't want the hassle of reselling your car, then leasing may be the better option for you.
With leasing, you have the option to upgrade your vehicle every two, three or four years, allowing you to take advantage of improvements in vehicle safety, style and technology.
As you never own the vehicle, you also don't need to worry about depreciation costs or selling the vehicle at the end of the term as the finance provider handles all this.
However, if you prefer to own a vehicle or drive a lot of miles every year, buying may be a better option for you. When you own a car, you have the freedom to sell it whenever you want. There's also no limit on the number of miles you drive, so you don't need to worry about excess mileage costs, as you would with leasing.
If you have a poor credit rating, which may make it difficult to obtain vehicle finance, buying a car outright via a bank loan or via dealer finance may be a better option. Most finance providers ask for a good to excellent credit score in order to lease a vehicle which may mean car leasing is not suitable for some customers. We can also not assist businesses who wish to use the lease vehicle for "Hire & Reward" purposes, such as Taxi, Chauffeur, Driving Schools and Rental companies, as the finance provider forbids this.
Whether you buy or lease a car, you must consider all options before making a decision. Each option has pros and cons and which best suits you really depends on your needs and requirements. Find out more in our Buying Vs Leasing guide.