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How does leasing a car work?

Personal car leasing is an alternative way of getting a new vehicle if your budget won’t stretch to buying one outright.

It works a bit like renting a car because you don’t ever own it. If you lease a vehicle from a dealership, you typically pay a deposit, followed by monthly payments for a set period. These monthly payments are usually lower than they would be with other types of car finance.

At the end of the lease, you return the car. 

Because leasing a car involves a financial contract, the provider may carry out a credit check to see how reliable you are at managing credit. 

It’s important to keep up the repayments on your car lease, as missed payments could negatively affect your credit score, making it harder to get credit in the future. Your car can also be repossessed. 

If you want to end your car lease before the term ends, there may be additional charges, such as an early termination fee. The exact details will depend on the terms of your lease. It could also mean paying back a proportion of the remaining amount due on the lease, so make sure you understand these charges before committing.

Please note – HSBC doesn’t offer personal car leasing. 

Should you lease or buy a car?

Deciding whether to lease a car depends on many factors, including:

  • what you can comfortably afford
  • if you can meet the repayments
  • what type of car you want to buy

New cars can be expensive and depreciate fast. If you don’t have enough to buy a new car outright, personal car leasing can offer the benefit of driving a newer model, without the high initial cost. It may be less of an issue if you’re buying a used car, as they tend to be cheaper than buying the same model new.

If you want to own the car in full at any point, you’ll need to buy it – using either savings or a car loan. With a lease, you never actually own the vehicle. 

If you’d rather have the flexibility to change your car regularly or keep up to date with newer models, then leasing cars might be a better option.

Advantages of leasing a car:

  • you don’t need to worry about depreciation as it’s included in the monthly cost
  • monthly payments are typically lower than other car finance options
  • sometimes running costs, like road tax or servicing, are included in the cost
  • no long-term commitments or responsibility for selling the vehicle
  • flexibility to change your car every few years

Disadvantages of leasing a car:

  • you’ll never own the car
  • ending the lease earlier can be expensive
  • you’ll be charged extra for any damage
  • you’ll need to stick within an annual mileage limit
  • there might be restrictions on taking the car abroad
  • getting a lease will require a good credit score

Before you take out car finance or a leasing contract, work out what you can afford and factor in additional costs or charges you may need to pay.

What is a personal lease vehicle?

There’s a wide range of cars you can lease. You can often specify the make, model, and other optional extras, like trims or colour. What you pay back each month for the lease will depend on things like:

  • the value of the car
  • how long the car lease period lasts
  • the annual mileage limit

Most lease arrangements will have a limit on the number of miles you can put on the car. This is because the mileage will affect the car’s value at the end of the lease period. You agree on the limit at the start of the lease – it’s usually somewhere between 10,000 and 30,000 miles a year.

Can I lease a second-hand car?

You can lease a car if it’s second-hand – just like you would with a new car. A used car is likely to have slightly cheaper monthly repayments, as its total value will be lower than the same model new. It can be a smart way to get a better deal.

You’ll still need to pay a deposit. You also won’t own the car when the lease ends. If you want to keep the car for longer than the lease period, you may want to consider a loan. The money you borrow would cover the total cost of the used car, so you own it outright. You then make repayments on the loan over an agreed period.