What Is Car Leasing & How Does It Work?


Your Ultimate Guide To Car Leasing In 2019

Have you considered leasing a car rather than buying one? Leasing may seem a little complicated at first, but we want to let you into a little secret... leasing is far easier and cheaper than buying a car!

There's LOADS of benefits to leasing a car, so don't buy used lease brand-new! Here's our ultimate guide to car leasing... enjoy!

What Is The Difference Between Car Leasing & Car Buying?

Car leasing is simple. It means paying a monthly fee to drive a car. Like renting, but usually for a longer period.

Think of it like Spotify or Netflix - when you subscribe, you get to listen to music or watch films by paying a monthly fee. Easy!

The difference between leasing and buying really comes at the beginning and at the end. At the beginning, when you buy a car, you can find yourself paying a lot of money upfront. With leasing, the initial payment tends to be a lot lower.

At the end of your lease, you give back the car – so you’re only paying for what you use, and you’re not stuck with a used car at the end of your contract in the way you are when you buy.

Are There Different Types Of Car Leasing?

Technically, when you lease a car it is a lease which means you’ll never own the car at the end, and this is known as Personal Contract Hire. This is the only true form of ‘leasing’.

However, there are some ways of buying vehicles that seem like leasing but come with the option to own the car at the end. 

What Is Personal Contract Hire (PCH)?

Personal Contract Hire is what it’s called when you lease a car. It allows you to drive away your new car, pay monthly and give back the car at the end before you upgrade to a new one (if you want to... and why wouldn’t you?).

With Personal Contract Hire there is no option to keep the vehicle and at the end of your lease you will need to give it back to the finance company.

What Are The Benefits Of Leasing With PCH?

1. Affordable Monthly Payments - The great thing about leasing a car, or leasing any vehicle, is that you always know where you are with payments. They also tend to be lower monthly costs compared to other payment options. So rather than paying all your money upfront, you can keep to a budget by spreading the cost over time with affordable monthly payments. This works especially well if you’ve been given a company car allowance – you can spread this money into the monthly lease payments.

2. You’re Not Stuck With A Depreciating Asset - Like most vehicles, brand-new cars tend to depreciate from the moment you get them. So, if you buy a new car, you’ve lost money almost straight away. Leasing means you’re not stuck with a depreciated asset which may be difficult to unload, and you may not be able to get the newest model for quite some time.

3. Keeping Up To Date With The Newest Models - With leasing, you can always have the newest model, with a new upgrade every 2 years if you like. Just like the latest phone, if you want to get your hands on a new car, it’s very difficult when buying. With leasing, we make it easy with upgrades as soon as your current lease ends. Plus, with efficiency and fuel changes happening regularly in line with emissions rulings and the environmental policies put in place by the Government, you can ensure you’re always driving the most efficient vehicle and won’t be paying fees for having an old model.

4. No Need To Pay Road Tax Or VED - When you buy a brand-new car, you’ll need to ensure it is taxed and that you’ve paid the tax or Vehicle Excise Duty (VED). With most car leases (and certainly Motorama leases on Personal Contract Hire) road tax comes included as standard for the duration of your lease. This means you don’t have to worry about paying the VED for your entire contract!

What Is The Downside Of Car Leasing With PCH?

There isn’t one, not even one! OK, we do understand that people have an unhealthy nostalgia with owning a vehicle. So some may see the fact that you don’t get to keep the car as a downside. However, we don’t. As we move to a subscription society, it’s far more unusual to own something, and certainly seems a bit unnecessary when it’s only losing you money doesn’t it?!

Other things people tend to worry about when leasing a vehicle is the damage and mileage. If you damage the car, you may be liable to pay charges for repairs at the end of your lease. And if you go over your agreed mileage you will also be liable to pay an excess.

However, don’t worry too much, at Motorama we wanted to try to mitigate against these risks, which is why we’re offering up to £500 Damage Cover and a 10% Mileage Booster on every single lease. There’s really no downside at all!

Am I Eligible To Lease A Car On PCH?

Like any finance product, you need to meet the requirements before you’re able to lease a car. We’ve listed the usual requirements below:

  • You’ll need a good credit rating.
  • You’ll need at least 3 years of address and employment history.
  • You’ll need a full UK driving licence.
  • You’ll need to be over 21.

What Is Personal Contract Purchase (PCP)?

Personal Contract Purchase (PCP) works differently to Personal Contract Hire. PCP is like taking out a loan to buy a car, so it’s different to leasing. You tend to typically pay a higher deposit than with PCH, and unlike PCH you have the option to make what’s called a balloon payment and buy the car at the end of your lease.

How Does Personal Contract Purchase (PCP) Work?

Basically, you take out a ‘loan’ for how much value the car is expected to lose over the term of your lease. So, for example, if the car is worth £20k and it is expected to lose £10k over the period of your 3-year lease, you will be paying £10k split over 3 years plus interest.

What Are The Benefits Of Leasing With PCP?

There are two main benefits to PCP and the reason people opt for this when they want a new car:

  • You get to keep the car at the end. Unlike leasing, there is the option to keep the vehicle if you want it by paying a balloon payment at the end of your term.
  • If the car you’re driving on PCP is worth more than the balloon payment, you can use this equity as a deposit for a new vehicle and get the latest model with another PCP deal.

What Is The Downside of Car Leasing With PCP?

There are a few risks with Personal Contract Purchase and mainly that you might end up paying more than you must and more than you would by simply leasing with PCH. For example, the deposit you put down at the start is usually 10% of the entire value of the car when new!

The main problem with PCP comes in the mis-selling of it. The value of the car can be calculated wrong at the beginning of your contract, meaning it might not be worth what you thought it would be at the end.

It’s also interesting to note that the interest payments applied to each monthly payment are based on the whole value of the car, rather than just the ‘loan’ you’re taking, so your monthly payments may be higher than they need to be.

Overall, PCP is riskier than PCH and even if you can trade in your vehicle at the end and get a new one, you might end up trapped in a never-ending PCP loop.

What Is Hire Purchase?

Hire purchase is just a way of buying the car. So, it’s a little different to the other types of leasing and you get to keep the car at the end of it.

You pay monthly payments to pay off the car and then at the end you pay another fee to own the vehicle.

What Are The Benefits Of Leasing With Hire Purchase?

The main benefits of Hire Purchase are that you can split your cost into manageable monthly payments rather than having a large outlay at the beginning and you get to own the car at the end of your term.

What Is The Downside Of Hire Purchase?

There are a few disadvantages to Hire Purchase which mainly come in the form of high monthly payments:

  • If the car is not worth as much as you thought, you’ll continue to pay high fixed monthly payments.
  • There tends to be a high deposit with hire purchase and there is a fee at the end to own the car.
  • Overall it can just get a little expensive!

How Much Does It Cost To Lease A Car?

The cost of leasing a car will very much vary depending on the brand-new car you want, the number of miles you think you’ll drive over the period of the lease, and the amount of money you put down as an initial payment.

However, if we look at an example, we can see if we look at an average vehicle value of £23k then you would be looking at an average of around £300 per month* and around a £1,500 deposit*.

Is It Cheaper To Buy A Car Or To Lease One?

Of course, deciding whether it’s cheaper to buy or lease a car really depends on the vehicle you choose and the comparison. If you’re comparing buying a used car with a brand-new lease then of course, in the short term, the used vehicle is likely to be cheaper. But then you need to consider the maintenance cost and the cost of repairs and staying on the road you might have to pay when a used vehicle goes wrong.

However, if you compare like-for-like on a vehicle, it can be a lot cheaper to lease a car than to buy one and your payments are kept low at the beginning and monthly so there is no large upfront outlay.

How Does Car Leasing Work?

Leasing a car is very easy. With Motorama you can get everything sorted online - so you don’t even need to speak to a human… unless you want to of course!

It only takes a few simple steps to get a brand-new car:

Step 1 - First it’s the exciting bit - choosing your brand-new car. If you already know the model you’re looking for, you can find the best deal for the car you want here, or if you’d like to have a browse you can do that here too.

Step 2 - Once you’ve chosen the car you want, you’ll need to decide how long you want to lease it for. You can choose between 2, 3, 4 and 5 years. You’ll also need to estimate how many miles you’ll drive in that time.

Step 3 - Once you’ve got your leasing package sorted, you’ll just need to enter some details. These will be what the finance company needs to ensure you can afford the monthly payments.

Step 4 - Next up, all your information is sent off to the finance company and once they’ve approved your application you’ll need to pay a reservation fee to secure your new car. This will be refunded once your car has been delivered.

Step 5 - And finally, we’ll send you all the paperwork. All you need to do is sign the documents and you’ll have your new car in no time! 

How Long Can I Lease A Car For?

There are a range of lease lengths when it comes to leasing a car. The typical options (and the ones we offer at Motorama) are 2, 3, 4 and 5-year leases.

We think that after 5 years (at the very max) you’ll want to upgrade to something brand new - just like when you upgrade your phone. And with all the changes in technology and rules around car emissions, this just means you’ll be able to keep up with the times while paying less.

What Happens At The End Of A Car Lease?

At the end of your car lease the great news is you have the freedom to do what you want. You simply give back your car and can choose what you want to do next.

Most people choose to upgrade their car to the latest model. And, we’ll ensure you don’t go a day without a car by picking up your old model at the same time as we drop off the new one!

How Do I Get The Best Car Leasing Deal

Getting the best car leasing deal is simple with Motorama. There are LOADS of companies for you to pick from if you're looking to lease a car, but we use an exclusive tool called LeaseScanner. LeaseScanner scans the whole market to make sure we get you the best deal out there.

We are also a broker, so we get the best deals from the finance companies and the best deals from the manufacturers and put them together to give you the best leasing package. Want to see what we can do for you? Search for our best deals here.

And that’s it - your complete guide to car leasing. Still have questions? Feel free to get in touch!

*Figures correct as of July 2019 and are based on average data from the past 12 months.

How to order a new lease car?   In contract FAQs   FAQs about your new car delivery   What happens on delivery day?   What happens at the end of your car lease