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What is Car Leasing?
It might help to think of car leasing as an extended hire
You could enjoy the experience and reassurance of driving a brand new car, with less hassle than owning and maintaining a car of your own.
You could lease a car from 2 to 5 years, depending on the lease provider and your preferences or monthly budget. You’ll make fixed payments over a fixed term.
Just bear in mind there will be conditions. For example, annual mileage limits apply.
At the end of the agreement, you’ll hand the vehicle back in good condition. At that point, it’s up to you if you want to start another car leasing agreement on a new vehicle.
Find out more about how car leasing works below.
Is leasing a car right for me?
If you’d ultimately like to own your vehicle, leasing a car may not be the right option for you.
But, car leasing gives you the option to drive a more reliable and up to date car without the hassle of selling or worrying about depreciation. Read on to learn more:
Features of car leasing
- Predictable costs. Pay a fixed amount each month, for the duration of your car leasing agreement.
- New vehicles. You can lease a reassuringly reliable brand new car, covered by a manufacturer warranty for up to seven years with some car manufacturers.
- Maintenance coverage. Repairs and MOT costs are usually handled by your lease provider for the length of your agreement for an extra fee.
Things to consider
- Mileage limits. Agreements have a limit on how far you can drive the car. If you exceed these mileage limits, additional charges will apply.
- Damage costs. You’ll be charged for any wear and tear beyond normal use, like dents, scratches or scuffs.
- No ownership. You’ll have to return the car when your term comes to an end.
- Termination fees. You'll face charges if you want to end your lease early.
Let’s look at the details
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Personal Contract Purchase (PCP) and Personal Contract Hire (PCH) are very different things.
PCP is a financing agreement, which gives you several options at the end. You could choose to pay off the vehicle finance and keep it, return the car (conditions apply), or upgrade to a new one.
PCH is a leasing agreement. At the end of the lease, you’ll have to return the car and there is no option to own it.
Personal Contract Purchase
- Involves paying a deposit, followed by a fixed payment for a set number of months.
- Gives you the option to trade it in for a newer model at the end of the agreement, hand it back in good condition (conditions apply) or purchase the car. You may want to explore refinancing options when the time comes.
- Can be a good option if you may want to own the car.
- You will usually have to pay interest, and you won’t own the car until you pay the full finance amount.
Personal Contract Hire
- Involves paying an initial rental (upfront payment) then fixed monthly payments.
- There’s no option to buy the car at the end of your term and you’ll have to return the car in good condition.
- Your monthly payments may be lower, because you’re not making repayments and incurring interest to own the vehicle.
- You could have access to a better, more reliable car for the duration of your agreement, with the reassurance of a manufacturer’s warranty and maintenance covered by your lease provider.
In either case, additional charges will apply if you exceed the agreed annual mileage, or hand the car back in poor condition, excluding routine wear and tear. Charges may vary depending on the lender.
When you’re in the market for a new car, it’s worth weighing up all options to find the one which best suits your needs. There are other options to consider, including:
Hire Purchase (HP) – you’ll usually pay a larger deposit and monthly repayments, but you’ll own the vehicle outright at the end of the agreement.
Personal loans – you could take out a personal loan and buy the car at the start. You’ll own the vehicle, but you’ll be responsible for repaying the loan to your provider each month.
If you select HP or a personal loan, although there aren’t any mileage limits to think about, putting miles on the clock will affect the future value of the car.
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The length of time you choose to lease a vehicle for will depend on your personal needs and circumstances, as well as the terms of your lease agreement. Lloyds Bank offer car leasing terms of 2-5 years.
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At the end of a car lease, you'll have to hand back the vehicle. You can't keep the car, as you are not the owner, but you can take out a lease on a new car if you want.
It’s important to keep the car in good condition for the duration of your lease. You will be charged for any damage that goes beyond normal wear and tear. You will also be charged if you’ve gone over the agreed mileage limit. Charges may vary depending on the lender.
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You can lease a second-hand car on some agreements. But, at Lloyds Bank we only provide leases for brand new vehicles.
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When you take out a leasing agreement, you’ll be asked to set an annual mileage limit based on your usual driving patterns or behaviours. This can affect the cost of your monthly lease payments.
If you underestimate, additional charges may apply when you hand the car back. If you overestimate, you may find that you’re not getting the best value. So, it’s important to set a realistic mileage limit. Some lease providers may set a mileage ceiling to protect the future value of the car.
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Most of the time insurance is not included in your car lease. Some providers may offer car insurance as part of an insured lease agreement with you, but this may be reflected in your monthly leasing payments. At Lloyds Bank we don’t offer car insurance as part of the lease, but you can arrange car insurance with us separately.
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