The majority of UK motorists are missing a trick when it comes to how they get their hands on a car.
As car prices have steadily risen, and salaries have shrunk, owning a car outright has become a sure fire way to burn a massive hole in your wallet. And that’s before you’ve even taken into account how fast cars naturally lose value.
But there is a solution and it's called contract hire and leasing.
Here’s how this type of car finance could save you loads of money on your car costs and free up your finances for more interesting things.
So, what does this pretty ambiguous phrase actually mean? Basically the first part of ‘contract hire and leasing’ refers to a specific type of car lease, whilst the second half refers to car leasing in general.
Let’s break both of the phrases down, so you can understand just what the hell I’m talking about.
This is just one type of lease contract available from many.
Contract hire is a type of car lease called Personal Contract Hire (often abbreviated to PCH). It’s essentially the go-to type of lease if you’re leasing a car for personal use (as opposed to business).
With this type of lease, you’ll put down an initial payment at the start that essential acts as the deposit. You’ll then make monthly payments on the car for the length of time of your contract – normally around four to five years. These payments essentially cover how much value the car loses whilst you’re using it (called the depreciation).
At the end of the contract hire term, you’ll just give the car back to the company. Although you won’t get the option to buy the car at the end of the contract, you’ll probably benefit from significantly lower monthly payments over the course of the lease than if you were buying the car.
This makes contract hire excellent in terms of value for money.
This is a really broad term that’s used to refer to the amazingly complicated field of car leasing. There’s a lot of different car leases available out there, but the basic principle of it is pretty much the same in most of them.
Car leasing is when you essentially rent a car from a finance company or dealership for a given period of time, giving it back or selling the car, when the period comes to an end. You won’t get the option to buy the car at the end of the contract, but you’ll usually benefit from cheaper monthly payments than if you were buying outright.
Leasing gives you a lot of different options because of the huge amount of types and deals that you’ve got available to choose from.
For some reason, when a lot of companies use the word leasing, they generally mean a type of finance called Personal Contract Purchase, which, being incredibly pedantic, isn’t really the most representative type of car lease at all– hence, why I’m getting so snarky in this article.
So the main types of leasing contracts available are:
- More About Personal Contract Hire
- More About Business Contract Hire
I’ve written pretty extensively on these topics above, so just click the respective links to find out more about them.
The easiest way to understand what contract hire and leasing actually is to compare with it’s mortal enemy and eternal opposite– buying a car outright.
I’m going to make a pretty controversial statement.
In all honesty, buying a car can make for a pretty rough deal when you compare it to the massive savings that you can make with contract hire and leasing.
If you buy a car, you’ll be expected to provide all of the money for it upfront. Usually, dealerships will have an arrangement with finance companies who can offer you credit or loans if you don’t have all of the money. You’ll then make monthly payments until you’ve covered the cost of the car, with added interest on top.
“Well, what’s wrong with that?”, I hear you ask.
Well, cars are notorious when it comes to losing value. Most experts estimate that a car can lose around 10% of its value the first time it’s driven on a road, and from there on in, it’s all downhill in terms of what it’s worth.
In a matter of years, when you come to sell the car, you’ll find that you’ve paid tens of thousands for something that’s now only worth around half that (or even less). As investments go, buying a car to make a profit when you sell makes about as much financial sense as investing in Northern Rock or Woolworths shares in 2018 (Eg. Not a lot).
Do you want the long answer or the short answer?
The short answer is: practically everything you can think of. You’ll find that a decent broker is able to offer you cars from every brand you can think of: from the humble Citroen to the mighty Lexus. Finding the right lease car can be a bit of pain because of the sheer amount of cars that are available. But we’ve got a secret weapon – you can use LeaseFetcher to compare millions of deals and find the one best suited to you.
Here are some of the most popular car brands that are available with contract hire and leasing.
Contract hire and leasing special offers
Contract hire and leasing Audi brands is particularly popular with UK motorists – probably to due in part to the German manufacturer’s coveted reputation for fantastic build quality and practicality.
With contract hire and leasing, you can pick up an Audi A3 from £209.86 per month, for instance, whereas if you tried to buy it outright, you’d have to stump up around £24,000.
Sporty, potent and precise, BMW is probably one of the most iconic modern car brands.
It’s a firm favourite with British drivers with a fearsome reputation for both style and performance.
If you’re looking at contract hire and leasing as an option for getting your hands on one, you’ll be able to pick up a BMW 1 Series from £189.48 per month, a 4 Series from £249.04 and a I3 Hatchback from £309.73.
It’s an automotive icon, having created some of the most enduring models, like the Golf, Passat and Polo, and no amount of industry seems to stand in it’s way (read my blog about the recent Diesel Scandal to get up to speed). Volkswagen cars consistently rank as one of the most popular cars to lease in the UK, and with an enviable build-quality, it’s not hard to work out why.
There’s a great range of contract hire and leasing options on loads of Volkswagen models. For instance, you can pick up a Volkswagen UP Hatchback for a ridiculous £119.99 a month, a Volkswagen Golf Hatchback for £175.84 and even a Volkswagen Passat Saloon for a mere £227.53 a month.
A legendary Japanese manufacturer, Nissan are known for the high quality, practicality and reliability of their cars. Although the brand was once seen as pretty boring and safe, it’s done a lot to shake off that perception, releasing car after car that combines practicality with some pretty sleek styling.
If you’re after something a little more unconventional, try the all-electric Nissan Leaf, which has the potential to significantly cut your fuel bills. You can pick one up for around £273.85 per month with contract hire and leasing.
This South Korean brand is fast becoming the go-to manufacturer of choice in the contract hire and leasing world for people after a car that you can really rely on. It’s cars are consistently touted as some of the most consistent and reliable you’ll probably find and they’re pretty damn affordable to, thanks to the perks of leasing.
Some of my personal favourites you can get on a contract hire arrangement include the Kia RIO Hatchback which you can lease from £129.42 a month, the Kia Sportage Estate from £186.00 a month and the Kia Niro Estate from £188.04 a month.
Luckily, the industry isn’t a wild west one. There are a number of professional bodies and associations that regulate the leasing industry. They’re designed to look out for the rights of customers and determine the practices and levels of service that companies have to abide by.
The main two regulators you should see mentioned by a good leasing company include:
British Vehicle Renting and Leasing Association (BVRLA)
All decent leasing and contract hire brokers worth their wheels will be members of the British Vehicle Renting and Leasing Association (or BVRLA, for short). This regulatory organisation sets standards for its members, and the wider industry, through its code of conduct. If a car leasing company is a member of the BVRLA, they’ll probably be relatively trustworthy (although obviously do your own research to weed out any dodgy ones).
Finance and Leasing Association (FLA)
This is another of the leasing trade bodies for the leasing industry, founded in 1992. The Finance and Leasing Association (also called the FLA) does pretty much the same thing as the BVRLA – protects standards across the industry. Like the BVRLA, it has strict guidelines and standards that it expects all of its members to follow.
Financial Conduct Authority (FCA)
The Financial Conduct Authority (or FCA, as it’s also known) is one of the main regulators for the finance industry as a whole, covering a whopping 58,000 companies across the UK. It’s independent of the government and it has the power to set minimum standards and regulate prices too.
What is ‘Fair Wear and Tear?’
One of the main worries that people have when it comes to leasing is keeping their car in a pristine condition so that they don’t face a hefty charge at the end of the contract. But it’s an unfounded worry, to be honest. Why? Because most (if not all) leasing contracts work on the assumption that the car is bound to suffer some minor, surface damage – like the odd scratch here and there. This is called ‘fair wear and tear’ and you won’t be charged for any damage that falls within its definitions.
Usually what’s considered fair wear and tear varies between different contracts, but if you’re leasing through an accredited company, this is easier to pin down. The BVRLA’s Fair Wear and Tear guide is a good place to start when it comes to working out what type of things you’re allowed. Here’s a quick summary of it:
General appearance, road safety, documentation, keys
- You car should be roadworthy with no warning lights showing
- There should be no rust on your bodywork
- You should have enough fuel so that the car can be driven to its collection point
- All electronic features like parking sensors need to be working
Paintwork, vehicle body, bumpers and trim
- No rust on the body
- Repaired chips and scratches are okay provided that they’re repaired to a professional standard
- Paintwork should be a in a good condition and not flaking
Windows, glass, door mirrors and lamps
- Light scratches on the windscreen are okay as long as they don’t affect the driver’s line of sight
- Scuff marks on the lights up to 25mm are okay
Tyres and wheels
- All tyres and associated equipment need to be in a good condition
- The car needs to be capable of passing an MOT test
- Wear and light soiling through use is acceptable
- Stains, scratches and tears aren’t acceptable
Equipment and controls
- All equipment and controls that were present in the car at the start of the lease need to be returned with it, in a good condition
So, by now you should have a pretty decent understanding of how contract hire and leasing works. Why should you choose it to get your next car though? I’ve listed some of the main pros of contract hire and leasing vs buying a car below.
It’s less risky than buying
As I’ve alluded to at the start of the article, cars lose value faster than you lose your keys and self-respect after coming home from as heavy night at the pub. The AA, for instance, state that a new car will lose around 40% of its value in the first year that you own it and that’s a figure it’s worth paying attention to. After the first year, the depreciation will slow but it will continue and it’ll never stop. Give it two or three years and you’ll be left with a car you’ve spent tens of thousands a short while ago, that’s now worth a fraction of what you paid for it.
Good luck reselling it and trying to make a profit.
Contract hire and leasing is a better option than buying in this case, because you aren’t left with the risk of this happening – you won’t own the car, so this headache will be completely avoided.
It lets you experiment with different cars
The sheer fact that you’ll be shelling out a lot of money upfront to buy a car means that you’ll naturally be a bit more hesitant about experimenting with different types of models. As a result, your choices for buying are often limited to a specific number of cars that you’ve had some personal experience of. After all, if you’re stumping up all that money, you’re not going to really want to be stuck with a car that you hate, are you?
Contract hire and leasing, on the other hand, doesn’t tie you into the ownership of a car for the long term. Most leasing contracts run for around 5 years max. This frees you up to try a range of models that you might never have considered if you were just buying a car.
You can get access to new, high-spec vehicles
It goes without saying that new, high-spec, top-end cars are going to be much more expensive than run-of-the-mill ones. Most people with a bit of common sense will realise that you won’t be able to buy a Porsche 911 for the same price as a Nissan Micra and the high price point of the top-end cars is obviously a barrier to ownership for most people.
The beauty of contract hire and leasing is that it significantly weakens this barrier by letting you pay for the use of car in small monthly payments, in turn, giving you access to brand new cars that you’d never really have ever dreamed of being able to own on your current budget.
Monthly payments can be cheaper than buying
To understand why contract hire and leasing can be inherently cheaper than buying, you need to think about the difference between the two type of contracts and what you’re paying for.
With contract hire and leasing, your monthly payments are actually paying off how much value the car loses whilst you own it, rather than the entire value of the car (which you’d be paying off if you were buying the car). This works out a hell of a lot cheaper than buying to be honest.
Here’s a case study. Say you’re daft about the Jaguar F-Type Coupe. If you were buying the car outright, you’d have to stump up £49,810. Say you choose to sell the car in a year and half, you’ll only recoup about £24,905, based on how quickly it will lose value. That means you’ll have lost £24,905. If you choose to get the car through contract hire and leasing though, you’ll pay a relatively tiny £640.44 a month.
Okay, we’d be completely fibbing if I didn’t admit that contract hire and leasing has its drawbacks. Here are some of the main cons of contract hire and leasing that I can think of.
Not owning the car might not suit some people
It’s true that some people might not be suited to leasing because it’s just not really something that’s suited to their personality. Some people really need the sense of security that physically owning something can provide so they’re willing to pay a higher price and shoulder the massive responsibility of owning a car as a result. For others, that just isn’t a problem.
You’ll need fully comprehensive insurance on your lease car
A lot of dealers and brokers insist that if you’re leasing a car from them, it needs to be insured on a fully comprehensive insurance policy. This is obviously a measure that they use to protect the value of the car if anything happens to it whilst you’re leasing it. For some people – those who want to spend as little money as possible on a car – this can be a drawback of leasing.
You’ll have a mileage limit
When you lease a car, you’ll also be required to stick within a specific mileage limit either per month, per year or over the entire course of the contract. This is another measure that the broker or dealer will put in place to protect the value of the car. If you go over the limit, expect to face some penalty charges for every mile that you go over.