How Car Leasing Works In The UK


Car leasing is increasing in popularity in the UK and will likely soon be the most popular way for people to get their cars. But what about the rest of the world? Money is tight for most of us and purchasing cars outright is no longer an option when it comes to getting a car. That leaves finance and leasing options, but do they work differently in other countries as they do in the UK?

How leasing works in the UK

If you live in the UK, you can lease a car by placing a deposit down on a car followed by paying a series of monthly payments for the duration of the agreement. You do get a lot of flexibility when it comes to your leasing agreements, in terms of length and how much you wish to pay monthly and so on. You have to be at least 18 years old to sign up to a leasing or finance agreement in the UK.

There are two primary agreements for car leasing. Contract Hire, which is the purest form of car leasing and Personal Contract Purchase (PCP), which straddles the line between car leasing and car finance. Both are great forms of leasing. The principle of leasing is that long term rent a car and at the end of the lease term, you simply return it without taking ownership.

Leasing agreements usually last 24-60 months, with the most being 48 months long. When these agreements come to an end, you have choices to make. With a Contract Hire agreement, you just hand the car back, no problem.

However, with Personal Contract Purchase, you get more choice and this is why it straddles the line between leasing and finance. Like with a CH agreement, you can just hand the car back at the end of your PCP agreement and move on. However, you also have the finance option of paying off the remaining Guaranteed Minimum Future Value, also known as a balloon payment and that gives you ownership over the car.

Your car leasing options in the UK

For a moment, let’s discuss car finance. Car finance agreements are designed for you to purchase a car and take ownership of the car. This requires you to pay for the entire value of the car in one form or another. That can be through a Hire Purchase agreement that allows you to pay the entire cost of the car over an agreed period with monthly payments. Or, you can go down the PCP finance route of purchasing a car by paying off the GMFV.

However, with leasing, you are not paying off the value of the car. Instead, you are paying off the depreciation on the car for the period of the agreement. From the moment you drive the car away to the day you return it, the value of the vehicle will have depreciated. The deposit and the series of monthly amounts that you pay to cover the cost of that depreciation. This is why the cost of a leasing agreement is in most cases cheaper than finance deals for the same vehicles.

Affordable leasing options

There are times when financial situations do not allow us to get the perfect deal in terms of leasing or finance. This can mean that you don’t have the money for a deposit and therefore feel you cannot get a car. Or you could have poor or bad credit and have, therefore, been rejected.

If you don’t have the money or simply do not want to pay a deposit, you can still get car leasing deals. Hippo Leasing offers no deposit car leasing that allows you to lease a car without paying a deposit. If you choose to go down this route, you will have to pay higher monthly payments than you would if you did pay a deposit. This is because the value of the deposit is spread evenly across the series of monthly payments.

With regards to those of you with poor or bad credit, there are also bad credit car leasing agreements on offer with Hippo Leasing. These offers allow those with poor or bad credit to access a car. However, because those with poor credit are deemed of higher risk, the interest rates on monthly payments will be higher than normal leasing payments. As long as you can pay the monthly payments on a bad credit car lease, you will be fine.

Car Leasing around the world

Car leasing in one country like the UK could be very different to car leasing in another say like the USA or Australia, for example.

In Australia

Down under in Australia, leasing agreements are agreed between a Lessor (lender) and the Lessee (customer). There are four forms of leasing in Australia. There is, Personal or Consumer Lease, Finance Lease, Operating Lease and Novated Lease. With leases in Australia, the car’s ownership remains with the Lessor.

Personal or Consumer Lease

These lease types are basically like our own Contract Hire and PCP agreements. You pay to lease a car for an agreed period before eventually handing the car back to the Lessor. It works very much in the same way as the leasing agreements in the UK do.

Finance Lease

A finance lease is similar to PCP deals here in the UK. The Lessor leases a car to the Lessee under the proviso that the Lessee pays off the residual value of the car at the end of the lease. The Lessee has an obligation to ensure that the residual value is met either through a lump sum payment or by taking out another finance agreement. This is similar to paying off a PCP’s Guaranteed Minimum Future Value payment when it comes to an end.

Operating Lease

An Operating Lease is used primarily for businesses in Australia. In terms of this type of lease, the residual value is met by the Lessor rather than the Lessee. What this means is that the Lessee must hand the car back to the Lessor when the lease agreement comes to an end, similar to a Business Contract Hire agreement.

Novated Lease

A Novated Lease is a finance lease taken out between a Lessor and a Lessee, but the cost of the lease is paid by the Lessee’s employer. The employer must also pay off the residual value when the lease comes to an end. The employer can choose to take the amount on the lease out of the Lessee’s pay each month to cover the costs.

Leasing a car in North America

Canada and America lease cars in similar ways to how we do in the UK. There are a few differences. In North America, most leases are shorter than they are here. In the UK, most leases last 48 months, however, over the Atlantic, they usually last between 24-36 months. They do calculate a residual value based on the condition of the car, equipment and mileage etc as they do here and in Australia. However, in North America, they actually measure their annual allowances in kilometres as oppose to our use of miles.

When leasing agreements end in North America, you get the similar situation that you do with our own Contract Hire and PCP agreements. You can just hand the car back to the leasing company and move on. Or you can pay off the residual value as you would with a Guaranteed Minimum Future Value with a PCP deal.

The rest involved with leasing in North America is the same as you would lease a car here in the UK.

Leasing on the European Continent

In Europe, car leasing is an atypical rental contract, which means the Lessee has access to a car, but ownership stays with the Lessor. In fact, leasing on the continent is very much the same as leasing here in the UK. There is very little difference in terms of how these agreements work.

Have you moved to the UK?

If you have moved and lived in the UK for three years, you are eligible for car leasing. If that is the case and leasing sounds like the right option for you, we have a great selection of cars available.

Your car of choice will depend entirely on your requirements. Hippo Leasing offers everything from family hatchbacks that are perfect for taking children to school and getting the weekly shop to large 4X4 SUVs that can take you on an off-road adventure. If you are looking for a fast, sports car, we also have a great selection of both coupe and convertible models of the most popular cars on the market.

Car leasing is about getting you the right car for an affordable price without any hassle throughout the entire process.