Buying on lease…

Buying a car on lease means you drive a new car, which you can change every few years, with a relatively low monthly payment plan and without the worry of the car’s resale value.

There are four types of financing a new car;

1. Personal contract hire (PCH)

Also known as Vehicle Leasing. You never own the vehicle and you have to hand it back at the end of the term it’s almost like a long-term rental. You lease the car via a dealership or leasing broker for an agreed period of time, and typically make one upfront deposit payment, followed by fixed monthly payments. Once your contract is up, you simply return the car

2. Personal contract purchase (PCP)

This type of contract requires the payment of an initial deposit, followed by monthly installments. The monthly installments pay off only the depreciation of the car, and not the entire value

With this plan, you have the option to buy the vehicle at the end of the term in exchange for a balloon payment or return the car

3. Hire purchase (HP)

Requires you to pay an initial deposit, then you pay off the remaining balance of the car value via monthly installments

Once all the payments have been made, you own the car

4. Personal loan (PL)

This is a way of self-financing the purchase of a car via a bank, lender or car finance broker

The borrowed money can be used to cover the full purchase amount or it can be used to make up a cash deposit

As with all rental agreements, there are some restrictions you need to bear in mind:

  • If you cancel your contract and return the car you’ll probably have to pay a fee, or might even be liable to pay all the outstanding rental payments.
  • You won’t be able to modify the car in any way – for example, adding a tow-bar – without permission. However, you can ask the leasing company to make modifications before you take it.
  • If you exceed the agreed mileage, you’ll have to pay a penalty for this extra mileage at the end of the agreement. It’s typically calculated per mile you exceed, it’s always worth checking how much the charge is before leasing the car as this could end up being a higher bill than the car itself, it can be a slippery slope!
  • You must return the car in good repair and condition (standard wear and tear is taken into consideration).
  • If you plan on taking your car abroad, you might need to get written permission from the finance company each time you do so and there might also be a charge.

Lots more information on finance schemes available on the British Vehicle Rental & Leasing Association website