How Does Leasing a Car Work in the UK? A First-Timer

By Interlease
03-11-2020
How Does Leasing a Car Work in the UK? A First-Timer

Leasing a car has never been more popular - more than 1.6 million people in the UK lease their vehicle.

For those new to leasing though, it can all be a bit overwhelming. PCP, PCH, contracted mileage and balloon payments… it can be a bit of a minefield to find something that makes sense.

That’s why we’re here to walk you through everything from “how does leasing a car work?” to the different types of contracts available.


What Do You Need to Lease a Car?

First things first, you’ll need a couple of documents to lease a car. Most importantly your driver’s licence.

As part of the process, you’ll also need a credit check. You will need a couple of different documents for this, usually the following as a minimum:

• Photographic ID

• Proof of address

• Proof of income

The credit check is to ensure you're able to afford the monthly payment amount of your chosen car - it’s nothing to worry about.


How Does Leasing a Car Work?

There are a few different options for lease contracts for you to pick from depending on your circumstances. The two most common contracts are PCH and PCP.

Personal contract hire (PCH) or private contract hire is a simple agreement where you rent a car for a given amount of time and then hand it back at the end of that period.

Personal Contract Purchase (PCP) is similar in that you still don’t own the car, you’re only hiring it for a given amount of time. But you have the option to buy the car and become the legal owner at the end of the lease. This is also known as a balloon payment or a guaranteed minimum future value.

Business Contract Hire (BCH) is exactly the same as PCH, but for business use. One of the main incentives for business leasing is the VAT benefits it offers.

PCP often works out cheaper as the monthly fees you repay are based on an estimate of how much the car will depreciate in value while you own it. You aren’t obligated to buy the car at the end of the contract, you can just hand it back. Provided the car is in good condition and you haven’t gone over the agreed mileage, there will be no more fees.

Only you will know whether PCP or PCH is right for you, and you should definitely shop around to see what great deals are available for both.


Leasing Jargon

There are some other terms that will be thrown around regularly. First-timers need to know what they mean to understand the leasing process.

Initial payment: An initial payment is your first payment as part of your contract. For example, if you took a 36-month lease, your initial payment would be your first payment, followed by 35 months of your monthly payments. It isn’t a deposit and you will not receive the initial payment back.

Contracted mileage: Your contracted mileage is how many miles you can do in the car, usually per year. Usually, mileage is pretty flexible when you are negotiating your lease, so just let your dealer know and they can amend to cover the miles you need. If you go over your contracted mileage, you will be financially liable for excess miles at the end of your contract.


What’s Included in a Car Lease?

There’s always a lot of confusion initially about what is and isn’t included in your car lease. 

Your car lease as a minimum will usually always include the car itself, as well as road tax and breakdown assistance as part of that price. Your insurance and any car maintenance costs are generally not included.

However, you can often add in a maintenance package as part of your car lease. As part of your agreement with your dealer, you will be expected to keep up with the maintenance schedule of your hire car. This needs to be with an approved garage.

Because of this, it’s often cost-effective to add a maintenance package into your lease agreement. Many dealers also offer to cover things like tyres, windscreens and more.

It is worth noting, maintenance packages will only cover scheduled wear and tear like MOT, oil changes and services. Things like vandalism and damage need to be covered by fully comprehensive insurance. 


The Process of Leasing a Car

This may vary from company to company slightly, but in general, there are five simple steps to leasing a car. 

1. Find the deal you want and apply

2. Get approved for finance (with credit checks)

3. Signing of contract

4. Delivery

5. Pick up your car

Although it can be boring, it’s important you take the time to read your contract and ensure you understand it. This stops there being any surprises later on. For example, if you go over your agreed mileage or have some minor damage, you’ll know exactly what to expect and who to contact.


Extra Tips for First Time Car Leasing

With the jargon, process and types of contracts covered - we hope you have a much better idea of how leasing a car in the UK works. We’ve got just a few extra helpful tips from our years of experience left!

Though you’ll have a credit check, you need to figure out your budget yourself to ensure you can afford the monthly payments. You also need to ensure you have enough funds for your initial payment comfortably.

Choose your mileage accurately. Don’t put it low just to try and avoid a higher monthly payment, the excess mileage fees will catch up eventually! Most companies are happy to allow you to up your mileage during your contract if you’ve put it too low, so talk to your vehicle provider about this possibility too.

Make sure you know what maintenance your lease car will need while you have it. Especially if it isn’t covered under a maintenance package. This means you can plan for the extra costs when you need to. 

Finally, get accurate quotes for insuring yourself in advance. There’s nothing worse than getting your heart set on a car and then realising you can’t afford the insurance for it! 


There’s No One Size Fits All Lease

We hope you can now confidently answer “how does leasing a car work” when it next comes up! Make sure you choose a reputable company who will help you find the perfect deal for your circumstances.

We lease cars nationwide across the UK. We pride ourselves on our great experience and personalised quotes, as well as our great range of available cars including premium leasing from BMW, Jaguar and Mercedes.