Car Leasing in the UK - finding the best lease car deal

The change in the personal tax rules regarding company cars in the UK has led to them becoming less and less popular in the last ten years, with many companies offering more limited vehicle choices, cash alternatives or removing the benefit altogether. The result is that personal car leasing, also called personal contract hire is becoming much more popular.

I have now leased several cars in the UK, and the process is not as complicated as many people think. However there are ways of helping to ensure that you find and obtain the best deal for your money.

Many people like to have a new car on their driveway every two to three years, and apart from vanity plates, the UK registration plate system allows everyone to know exactly how old a car is from 40 feet away. However buying a new car is a very costly business, especially as cars depreciate very rapidly, typically losing 30% in the first year, and 50% over three years.

Buying a car also involves a large payment up front, funded either by a loan, or by taking money from savings. Either way, it can be expensive for something that is losing value every month, and you as the owner take all the risk of the depreciation increasing faster than expected. When you come to sell the car, you then have the hassle of the selling process, and usually the shock of discovering that your car is worth much less than you thought.

In contrast, although personally leasing a car means that you do not own it, it has several advantages:

• A major one is that  the monthly car payments are 30% to 50% of the equivalent loan payments, with only a small deposit up front, typically the equivalent of three months payments (which includes the first months payment.
• This means that there are no upfront large capital costs, no loans, or no need to take money from your savings account.
• The reduced monthly payment means that you can usually drive a much more expensive car than you could typically afford with a loan. The alternative is a much reduced monthly payment.
• Having a new car means that maintenance costs are reduced to a minimum. The increase in service intervals to 15000 or 20000 or more means than over the lease period only one or two minor services are required. Tyres are now lasting much longer - on my last lease car I did not have to change a tyre the during the two years I had it.
• The warranty on the vehicle is likely to extend for more than the lease period, so if something major does go wrong it simply goes into the garage.
• Breakdown cover is usually provided by the manufacturer for two years or more, so no breakdown insurance required.
• With a new car every couple of years you get the advantage of rapidly improving fuel economy, reduced CO2 emissions, and improved driver aids such as integrated Sat Nav and Bluetooth phone control systems.
• At the end of the lease you simply hand it back so no paying for car advertisements, endless weekends waiting for buyers, or facing the "lions den" of the trade-in process. Knowing the exact day even means no need to have car insurance for two vehicles when they overlap.

The monthly lease cost is determined by two main factors. These are:

• The initial cost of the car. This includes any discounts applicable and any extra equipment specified. As leasing companies can obtain vehicles at much lower prices due to increased buying power, the initial cost can be illuminating.
• The estimated residual value of the car. This is determined by the depreciation of the car over the period of leasing, so this is effected by the length of the lease, and the mileage covered in this time.

It is therefore important to choose a car that depreciates as little as possible over the lease period. Typically vehicles from Mercedes, BMW, Audi and Volkswagen have low depreciation rates, resulting in very attractive monthly rates compared to more mass market cars.

Other factors can add significant discounts to the normal leasing cost. Manufacturers can occasionally offer leasing companies very good deals when cars are first launched and they need to get them out on the road and "seen". Later in a model's life, particularly before a update, manufacturer's can be keen to shift existing stocks, and will use leasing to move them, without reducing the retail price at dealers.

One thing to be beware of is the effect of "Additional Equipment" on the monthly cost. The vast majority of the optional extras in the brochure are have almost no effect on the resale value of a car after a couple of years, so if you choose an option costing say £200, an amount equal to £200 divided by 36 months will be added to the monthly payment. If you have leather seats, sat nav or upgraded alloys on your wishlist, ensure that you choose the right model level that includes the extras as standard as it can often be more cost effective.

Leases usually last for 24 or 36 months, with an upfront payment of 3 months. The leases are then described as 3+23 or 3+35 as the first month is included in the deposit payment. 36 month leases typically have lower month costs, but the different often is not large, which is good if you want to change your car every two years.

The mileage that can be covered during the lease obviously affects the cost, and the usual figure is 10,000 per year. However any amount can be specified. Any excess mileage requires an additional payment at the end of the lease, and is charged per mile. This is defined by the depreciation rate and is often around 5p to 10p/mile.

Searching for a lease car can initially seem a little over-whelming. A quick google search on car leasing companies will bring back a huge number of results, and it is clearly practical to search through them all.

The site that I recommend as a starting point is www.contracthireandleasing.com. This is probably the biggest site for searching for contract lease cars in the UK, and has an updating list of special offers from many different UK leasing companies.

Searching for a particular model will quickly provide an indication of the typical monthly cost for that model and will allow you to decide if it provides the right value to you or whether it is better to go further up or down within the range.

Another way to find bargains is to get on the email mailing lists of companies. They often can offer deals on cars that they already hold in stock, or that they want to promote to reach volume selling thresholds. If you are not fussy about colours, or exact specifications, the reductions on normal rates can be large. If the monthly cost excluding VAT is less than 1% of the normal selling price of the car it can be considered a good deal.

If you want to test drive a car, don't be afraid to go to a dealer and ask for a test drive. Main dealers are also able to offer leasing, so simply explain that you are interested in leasing the vehicle from them. You may be pleasantly surprised at the monthly cost they offer.

Once you have decided on the car you want, the next step is to get the best possible deal. Remember that the initial cost offered is not fixed, and can be negotiated. The approach I recommend is to get quotes from three or four online suppliers and at least one dealer and then ask them to compete for your business. This is usually a very quick process if you indicate strongly that you are serious about the lease.

The usual techniques of waiting until month or quarter end to get the best deals are just as applicable to leasing a car. If you can combine this with a time of a model change it is possible to find extremely good deals. Surprisingly it was a main dealer that offered me the best quote for my current car, they simply wanted an incremental sale to hit the next sales level so were willing to offer the car very close to their cost price. The result was a great deal.

So, if you want to have the benefits of driving a new UK car every 2-3 years and have the reassurance of knowing you have fixed costs, leasing a car can be a very cost effective thing to do.