How leasing works

Leasing a car is no different to leasing – or renting – anything else. If you rent a house or flat, you pay a deposit, then you get the use of it for an agreed period during which time you pay a set amount each month. Once the contract ends, the property reverts back to the landlord.

It's the same with car leasing. After agreeing how many miles you will drive each year, you'll pay a fixed monthly amount, often with a larger initial payment to act as the deposit. Thankfully most deals display this very clearly. For example, a 24 month contract listed as 6+23 would mean the first monthly payment is six times the usual amount (for a £150/mth deal, you'd pay £900 upfront in the first month followed by 23 monthly payments of £150).

You'll never own the car (or get the option to buy it) and at the end of the deal, the car goes back to the finance company. It's inspected and, just like with a property, you'll need to pay out if you've damaged anything (above normal wear and tear). You'll also face extra charges if you've exceeded the agreed annual mileage, usually for every mile you've gone over.

You'll usually lease a car from a finance company or sometimes direct from a manufacturer. The deal they offer, and how much you pay, is then based on the make and model you choose, how many miles you will do and how long you will keep the car.

The car remains the property of the finance company throughout, but as brand new cars quickly depreciate in value (accelerated further with time and higher than average mileage), when you hand it back it will be worth much less. Most leasing companies sell on the car when it's returned so the car leasing pricing model works by covering its loss in depreciation (the price it bought the car for minus what it predicts it can sell it for after the agreed term), plus a margin for profit.

Yet as lease companies usually buy multiple cars at a time, they're often able to pay far less for a brand new car than individuals, so the amount of depreciation is usually lower. This can mean leasing deals for certain models can be competitive, offering a cheap way to get behind the wheel of a new car.

What happens at the end of the lease?

Once your agreed contract term has run out, you'd usually arrange for the car to be collected and returned. However you may be able to extend the lease – it's worth contacting the finance company a few months before the end of the deal to check it will allow this, and whether it'll offer a discount on the monthly payment as it's now an older car.

At the point of returning the car, the finance company will arrange a time for it to be collected and inspected. Providing it's in good condition with no damage (aside from normal wear and tear) and within the agreed mileage, then there'll be nothing else to pay.

If there's damage then you'll receive a bill to cover the repair charges. Once the car has been returned you no longer have any option to get other quotes, so it's worth getting any major damage repaired before the inspection, enabling you to shop around for the repair costs.

Similarly if you've gone over the mileage limit, then you'll need to pay a charge, which is usually around 10p per mile, though always check how much this is before taking out the lease.

However, please do not worry about the above as we will aim to contact you around 9 months prior to your contract end date to discuss and advise on the next steps to ensure you do not run into any issues and to assist with the transition of handing back your current car and ordering a new one!

Auto Clubs International Ltd T/A Autoclub Car Leasing are a credit broker and not a lender, we are authorised and regulated by the Financial Conduct Authority. Registered No : 574462

Registered in England & Wales with company number : 05933252 | Data Protection No : Z253685X | VAT No : 983454877

Registered Office : 96 Castle Lane West, Bournemouth, England, BH9 3JU

Disclaimer: All vehicle images and descriptions are for illustration and reference purposes only, all vehicle leases are subject to credit approval and subject to change at any time. E&OE.

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