At a glance
Car leasing lets you drive a new car for a fixed monthly cost over an agreed term, without owning it at the end.
The cost depends on the car, the upfront payment, the length of the lease and the agreed mileage.
Drivers must pass a credit check, insure the car, stick to the mileage limit and return the car in good condition.
Leasing offers lower upfront costs and regular upgrades, but possible extra charges.
What is car leasing?
Car leasing, also known as contract hire, has grown in popularity in recent years as an alternative to traditional car ownership.
It offers flexibility to motorists who like to upgrade their car regularly, or businesses that want vehicles without the cash outlay of buying outright.
When leasing a car, you make an initial payment, then further fixed monthly payments throughout the length of your contract, which typically runs from two to four years.
At the end of the lease, the car goes back to the provider. There’s no balloon payment option that allows you to buy the car outright at the end of the contract, as with personal contract purchase (PCP).
How does car leasing work?
Here’s how to lease a car in five steps:
1. Compare car leasing deals
There are various online car leasing comparison sites that you can browse to find the car you want at a price you can afford. You can also apply online to lease directly from some manufacturers.
2. Customise your deal
You can choose the length of your car leasing term, initial payment and mileage limit when getting a quote.
You should estimate your annual mileage as accurately as possible to avoid charges at the end of your lease. You can usually adjust the other variables to fit your budget.
You can also bundle extras, like maintenance and colour upgrades, into your quote.
3. Apply for car leasing finance
Once you have a quote you’re happy with, you’ll be asked to complete a finance application. This involves providing personal information, such as proof of address, income and bank details.
You’ll need to pass a credit check to lease a vehicle, which will show up on your credit file.
4. Take delivery of your car
If your application is approved, your new car will be ordered from the supplying dealership. You’ll be contacted to arrange delivery.
Cars already in stock can take less than three weeks to arrive, while a bespoke factory order can take up to six months.
When you receive the car, check for any damage or scratches, and make sure you’ve received your warranty and service book. Don’t sign for the delivery unless you’re completely happy with everything.
5. At the end of the lease, hand back the car
Once your lease contract is up, your car will be collected and returned to the finance provider.
As long as it hasn’t been damaged beyond an acceptable level and you’ve stuck to the agreed mileage, you shouldn’t have anything more to pay. You’re then free to start a new lease agreement for a brand-new car.
How much does it cost to lease a car?
The cost to lease a car depends on factors such as:
Type of car
You’ll be able to choose from a range of cars, from budget-friendly to electric and automatic vehicles.
Length of lease
Choosing a longer lease agreement could make your monthly payments cheaper. But you’ll be tied to a contract for longer and could end up paying more overall.
Initial payment
A higher initial payment will reduce the total amount you owe overall, lowering your monthly repayments.
Annual mileage
A high annual mileage will increase your monthly payments because this quickens the car’s depreciation (loss of value). This means the finance provider won’t be able to sell the car for as much as a lower-mileage model.
How to lease a car responsibly
Even though you don’t own the vehicle, you still have certain responsibilities when leasing a car. These will be set out in your lease agreement and will include:
Make an upfront payment
At the start of your car lease agreement, you’ll have to make an initial lump sum payment (sometimes referred to as a car leasing deposit).
There’ll often be an admin fee to cover the cost of registering the vehicle and setting up the lease.
Pay in monthly instalments
After your initial payment, you’ll make fixed monthly repayments throughout the lease term.
Your car’s vehicle excise duty (VED), or road tax, is usually included in the leasing agreement. You may need to pay more if VED increases in the new tax year.
If you’re struggling to make your repayments, contact your lender as soon as possible to see if they can restructure your payment plan. If you keep missing payments, the lender could take back the car.
Stick to your mileage limit
If you return the car with a higher mileage than agreed in your car leasing contract, your lease provider will charge you an ‘excess mileage charge’.
This will be clearly stated in your lease agreement. Typically, it’s around 10p per mile but depends on the vehicle.
Look after the vehicle
You’ll need to make sure the lease car is kept in a roadworthy condition, with an up-to-date service record.
You’re also liable for repairing any accidental damage to the car, whether it’s a cracked windscreen or damaged bumper.
Can I lease a car with insurance included?
In most cases, insurance won’t be included in a car lease deal.
Unless you have a ‘total care’ package, you’ll be responsible for taking out car insurance for lease cars yourself.
As part of the car leasing contract, you’ll usually be expected to have comprehensive cover. You may need to provide a copy of your insurance certificate before taking delivery of your vehicle.
To help you get the car insurance you need at the right price, it’s a good idea to compare car insurance quotes instead of simply opting for cover that the leasing company offers.
Compare car insuranceIs car leasing a good idea?
Whether leasing or buying a car is right for you will depend on your personal circumstances and priorities.
Advantages of car leasing
Lower upfront costs than buying.
Fixed monthly costs for easy financial planning.
Being able to drive brand-new cars, including electric vehicles.
Less chance of maintenance issues with new cars.
No obligations to buy or sell the vehicle at the end of the contract.
Disadvantages of car leasing
Never owning the car.
Potentially more expensive overall than buying.
Charges for excess mileage and damage.
Penalties for missed payments or early termination.
How to find the best car lease deal
Here’s how to find the best car lease deals:
Check listings at specific times – you’ll often find good deals in March and September when new cars are registered.
Compare prices – considering different leasing providers helps ensure you’re not paying over the odds for your new vehicle.
Check out car leasing special offers – keep an eye out for discounted lease deals. These can be a great way to save on popular models.
Choose a shorter lease – although a longer contract will keep your monthly payments down, you’ll likely pay more overall to cover the car’s depreciation.
Avoid optional extras – metallic paint, leather upholstery and fancy wheel trims are all very appealing. But don’t get sucked into paying extra for features you don’t really need.
FAQs
Is it better to lease or finance?
Leasing can be a good option if you’re not keen on taking out finance or buying a car outright and like to drive a new car every couple of years. But remember that you’ll be charged for going over your mileage limit and you’re paying for a vehicle you’ll never own.
If owning a car is important to you, buying a car on finance may be a better option. But you’ll need to pay road tax, and maybe a balloon payment if you want to keep the car.
How does business car leasing work?
Business car leasing is for companies and employees who need cars for business-related activities.
The main difference between personal and business leasing is that a VAT-registered company can claim back VAT on their lease agreement.
If the car is used solely for business purposes, you can claim back up to 100% of the VAT on monthly payments. If the car is used for both business and personal use, you can claim back 50%.
Business lease deals also tend to offer higher mileage limits because of the longer distances typically travelled.
What does leasing a car include?
All car lease contracts generally come with road tax and delivery of the vehicle to your door as standard. Repairs covered under the manufacturer’s warranty should also be included.
Maintenance packages typically aren’t included, but they can be added to your leasing plan for an extra cost. In most cases, this covers your annual servicing, tyre replacement and other repair costs that might not be included in the manufacturer’s warranty.
Looking for something else?
As well as writing for Churchill and Privilege insurance websites, Karen’s CV includes working with M&S, Debenhams, Tesco, Sainsbury’s and John Lewis. With over 20 years of editorial experience for big household names she leads a talented content team with a focus on simplifying personal finance for everybody.
Ele Clark is an award-winning editor who has held leadership roles at Which? and news-stand publications in London and Dubai. She’s appeared across the press and media, including BBC’s Panorama. With almost 20 years’ experience in personal finance, insurance and consumer journalism, she leads a talented team at Compare the Market, creating insightful, accessible content to help people make informed financial decisions.
Charlie is a senior commercial leader with close to a decade of experience across the UK’s leading personal-finance and comparison platforms. Before joining Compare the Market as Head of Commercial in 2024, he held senior commercial roles at TotallyMoney and MoneySuperMarket Group.
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What our expert says...
“It’s important to weigh up the pros and cons to work out whether leasing a car is the right financial option for you. Monthly payments could be low because you’ve paid a sizeable deposit. Always look at the total cost of the lease contract.”