How much does it cost to lease a car in the UK?

In the market for a new car and weighing up the costs of different options? It can be tricky working out which car finance method is cheapest for you.

In this post, we’ll discuss the average cost of leasing, how the cost is calculated, all the different costs associated with leasing and whether you’re always liable to pay them, as well as doing a quick comparison of leasing vs buying.

Typical cost to lease a car

The cost to lease a car per month usually ranges from £100 to £2,000. On average, most people spend £300-600 per month on a car lease.

How is the cost to lease a car calculated?

The cost of a car lease is based on how much the car depreciates over the course of your lease contract. The rate of depreciation is based on a few factors:

• The model of car you choose - different brands depreciate at different rates.
• The length of the lease - depreciation happens most rapidly in the first 3 years.
• Mileage - the higher the mileage, the quicker the depreciation.

The final monthly cost is also influenced by how much initial rental you pay (an initial lump sum payment). The higher your initial rental, the lower your monthly cost (but the same overall lease price).

What costs do you pay before you get the lease car?

Every lease company has a different way of approaching fees for leasing, so you may not pay all of the following fees. If your provider does charge these, they are required before the lease begins.

Admin/processing fee

This is a fee that covers the work that the leasing company puts in to organise the lease. It includes ordering the car (if it’s a factory order), gathering all legal paperwork, writing up contracts, and more. If you decide not to go ahead with your contract, this fee is not refundable as it is seen as separate from the cost of the lease. Most leasing companies charge this but some do it free of charge.

Transaction fee

This is similar to the processing fee, but it covers the cost of arranging the lease. Some leasing companies charge both this and an admin/processing fee, but it’s less common to see a transaction fee charge.

Vehicle reservation fee

If you’re looking at a car that is “in stock” rather than a factory order, you may be charged a vehicle reservation fee to secure it whilst your contract is being prepared. This isn’t a very common fee but is important to be aware of when you’re comparing prices.

Initial rental

The initial rental is a multiple of your monthly payment which you pay upfront. You can choose to pay 1, 3, 6, 9, or 12 months upfront. The more you pay upfront, the lower your monthly payments, and vice-versa. When you see a lease deal advertised as being something like 3 + 35, this means it’s 3 months initial rental and 35 regular monthly payments.

What costs do you pay during your lease contract?

In your contract, you’ll agree on set monthly payments so you won’t have any bill-shaped surprises!

Monthly rental

Each month you’ll make your payment for the car - this is the monthly rental. This covers the cost of depreciation and includes your road tax.

What costs might you pay at the end of the lease contract?

If you look after your lease car really, really well, you may not have any extra fees once your contract ends. If you do receive any lease car return charges, they may include:

Damage charges

When you hand the car back, someone will come to inspect it. They use the BVRLA guidelines and note any issues which would be considered more than “fair wear and tear”. The amount you are charged depends on the scale of the damage.

Excess mileage charges

The inspector also checks your odometer. If you have driven more miles than was agreed in your contract, you’ll be charged for this. The excess mileage charge will be outlined in your contract and varies from leasing company to leasing company.

What costs are not included in the lease contract?

There are a few costs involved with running a car that are not included in your contract.

Comprehensive car insurance

When you lease a car, you need to take out comprehensive car insurance. You usually need to do this on your own separate from your lease contract. You can check the best prices using a comparison engine like Compare the Market.

GAP insurance

Whilst car insurance is a legal requirement, gap insurance is optional. It covers you for any potential gap between what the car is worth and what your insurance company will pay out in the case that your lease car is stolen or written off.

Maintenance (repairs and servicing)

Car maintenance is not included as standard in your lease contract. You can add on a lease car maintenance package with most leasing companies however, and this cost will be added to your monthly rental. Maintenance packages will cover the cost of your servicing and some repairs.

Fuel

Your fuel, whether it be electric, petrol, or diesel, is your responsibility separate from lease costs.

What other costs might you pay?

Your circumstances might change and you may need to make decisions about your lease that come with some extra costs.

Early termination fee

If you choose to end your contract early, you are usually charged an early termination fee. There are some instances where you are allowed to cancel without fees, like if the car is faulty in the first 30 days. Some leasing companies will waive the fee at their discretion if you’re cancelling for ill health or similar.

Mileage amendment fee

If you’ve underestimated how many miles you’ll do, you’ll need to ask your leasing company if you can amend your contracted mileage or face some super hefty excess mileage charges. You’ll be charged an admin fee to amend your mileage agreement, as well as paying a higher monthly rental to account for the extra depreciation.

Contract extension fee

You may be allowed to extend your lease contract if you love your car or if there are delays with your next lease car. Again, you’ll be charged an admin fee to cover the work done to sort out the paperwork.

Is it cheaper to lease or buy a car?

There are loads of factors which determine whether leasing or buying a car is cheaper for you. We’ve done a whole post investigating this, but we’ll go over the basics here. Working out whether it’s cheaper to lease or buy a car depends on your habits as a car owner.

When you lease, you’re only paying off depreciation, not paying off the whole car like with PCP or hire purchase.

This means, after 3 years, you’ve paid around 40% of the car’s value. If you’re someone who likes to get a new car every 3 or 4 years, leasing is cheaper because you’re not paying for 100% of the car (plus interest) and then reselling for less than half of what you paid.

If you’re someone who likes to hold on tight to your cars ‘til the bitter end, then buying might work out cheaper. You’re getting your full money’s worth over the years, and you’re not trying to make back any money when you resell.

Conclusion

The cost to lease a car is based on the amount of money the car depreciates during your contract. This is affected by the make and model of the car, the mileage the car will do, and the length of the contract. It usually amounts to 40% of the car’s overall value, which can work out between £100 and £2,000 per month.

Not all lease deals are charging exactly the cost of depreciation however! You can compare car lease deals from brokers all across the UK with Lease Fetcher so you can see who is offering the most competitive offer. Start comparing lease deals today.