Car leasing, also called personal contract hire (PCH), lets you drive a new car for a fixed monthly rental, then hand it back at the end. You never own it, and there’s no final payment to think about. It can be a simple way to drive a new car, but the mileage, condition and early termination rules are stricter than with PCP or HP. This guide explains how leasing works and how it compares.
In short
With car leasing (personal contract hire), you pay an initial rental and then fixed monthly rentals for an agreed term and mileage, usually two to four years. At the end, you hand the car back. You don’t own it at any point, and you’ll pay extra if you go over the mileage or return it with damage beyond fair wear and tear. Ending a lease early can be expensive.
How car leasing works
- Choose the car, term and mileage. Typical terms are 24 to 48 months, with an annual mileage from around 5,000 to 15,000 miles or more.
- Pay an initial rental. This is usually a multiple of the monthly rental, such as 3, 6 or 9 months’ worth. A bigger initial rental means lower monthly rentals.
- Pay fixed monthly rentals. Road tax is usually included. Servicing can often be added for an extra cost. Insurance is not included.
- Hand the car back. The leasing company inspects it and charges for any excess mileage or damage beyond fair wear and tear.
The leasing company owns the car throughout. It takes the risk on what the car is worth at the end, which is why there’s no final payment.
Leasing vs PCP vs HP
| Leasing (PCH) | PCP | HP | |
|---|---|---|---|
| Upfront | Initial rental | Deposit | Deposit |
| Monthly cost | Often lowest | Low | Highest |
| Own the car at the end? | Never | Only if you pay the final payment | Yes |
| Mileage limit | Yes | Yes | No |
| Condition charges at the end | Yes | Yes, if you hand it back | No |
| Option to buy at the end | Usually no | Yes | Already yours |
| Voluntary termination at 50% | No | Yes | Yes |
| Ending early | Early termination charge, often large | Settle or voluntary termination | Settle or voluntary termination |
The biggest difference between leasing and PCP is your rights if your circumstances change. With PCP or HP, regulated agreements give you a legal right to voluntary termination once you’ve paid half. Leasing doesn’t. See PCP vs HP for how those two compare.
Mileage and fair wear and tear
When you hand a leased car back, it’s checked against the agreed mileage and a fair wear and tear standard. Most leasing companies use the industry guide published by the BVRLA, the trade body for leasing companies. It sets out what’s acceptable for the car’s age and mileage, such as light scratches, and what isn’t, such as dents, kerbed alloys or damaged upholstery.
To avoid charges:
- Set a realistic mileage. Excess mileage is charged per mile over the limit, at the rate in your agreement.
- Keep the service history up to date, following the manufacturer’s schedule.
- Fix damage before you hand it back if a repair would cost less than the charge.
- Be there for the inspection, or take dated photos and video on the day.
You can challenge charges you think are unfair. If the leasing company doesn’t resolve your complaint, you can take it to the Financial Ombudsman Service for free.
Ending a lease early
This is where leasing is least flexible. Under the Consumer Credit Act, there’s a right to end a regulated hire agreement after 18 months, but it doesn’t apply where the rentals are more than £1,500 a year (section 101). Almost every car lease is above that, so in practice:
- you can usually only end early by paying an early termination charge set out in your agreement
- this is often a large share of the rentals left to pay
- some leasing companies let you transfer the lease to someone else, but many don’t
Important
Before you sign, read the early termination section of the agreement and ask what it would cost to end the lease halfway through. If there’s a real chance your job, income or family situation could change, PCP or HP gives you more legal protection.
What’s included, and what isn’t
| Usually included | Sometimes included (for a fee) | Not included |
|---|---|---|
| Road tax for the term | Servicing and maintenance | Insurance |
| Manufacturer warranty | Tyres | Fuel or charging |
| Breakdown cover (often) | Replacement vehicle | Excess mileage and damage charges |
Check whether the quote includes VAT. Business leasing prices are often shown without VAT, while personal leasing prices should include it.
Is leasing right for you?
Leasing may suit you if you:
- want a new car every few years
- have a predictable mileage
- don’t want to own the car or deal with selling it
- are confident you can keep the lease for the full term
It may not suit you if you:
- drive a lot of miles, or your mileage is hard to predict
- want the option to buy the car at the end
- might need to end the agreement early
- have pets or young children and worry about condition charges
Leasing is a credit agreement, so the leasing company will run a credit check. If you’re leasing for a business, see business vehicle finance and van leasing.
Car leasing FAQs
Can I buy my car at the end of a lease?
Usually not. Personal contract hire normally doesn’t include an option to buy. Some leasing companies may offer to sell you the car at the end, but they don’t have to. If you might want to keep the car, consider PCP.
Is leasing cheaper than PCP?
Monthly payments are often lower, but you own nothing at the end and can’t hand the car back early without a charge. Compare the total cost over the term, including the initial rental and any likely excess mileage.
Does leasing affect my credit score?
The leasing company runs a credit check when you apply, and the agreement shows on your credit file. Paying on time can help your credit history. Missed payments harm it.
Can I lease a car with bad credit?
It can be harder, because leasing companies take the risk on the car’s value. Some may ask for a larger initial rental or a guarantor. See bad credit car finance.
What happens if I go over my mileage?
You’ll pay the excess mileage charge in your agreement for every mile over the limit. Some leasing companies let you increase the mileage during the lease, which is usually cheaper than paying at the end.