Car leasing costs - a complete guide
Car leasing costs
Budgeting for a car isn’t always easy, particularly when there are so many costs and fees associated with having a car on a lease agreement. Here we look at these costs and how they compare to all-inclusive car subscription services, which simplify the expenses of having a car with a fixed monthly payment.
What is car leasing?
Car leasing comes in a variety of forms - some of which mean you end up owning the car, and others not. You might hear terms including:
- Personal Contract Purchase (PCP) – you pay an upfront deposit and then monthly payments, typically for two to four years, with another lump sum at the end if you want to buy the car
- Personal Contract Hire (PCH) – like PCP, but without the option to buy the car at the end of the agreement; an operating lease is a similar idea
- Business Contract Hire (BCH) – like PCH, but aimed at businesses, with the car as a business asset rather than a personal one
- Hire Purchase (HP) – monthly payments cover the whole cost of the car plus interest, and you own the car on payment of the final instalment
Leasing can be a great option if you ultimately want to own a car but can’t afford to buy one upfront. It’s also a good way to enjoy driving new cars with a lower financial commitment, and without worrying too much about depreciation.
However, car leasing isn’t a very flexible way of having a car, as you’re stuck in a lengthy contract that’s costly to get out of early should you need to. What’s more, there are strict mileage restrictions, with penalties for exceeding the agreed number of miles.
You can read more in our post on different types of car lease.
Car leasing costs overview
There are a number of different costs to bear in mind when you’re leasing a car. These include:
- An upfront payment – typically the equivalent of six months’ payments, or 10% of the value of the car
- Monthly payments – these may include interest depending on the type of lease you opt for
- Taxes and fees – such as VAT, admin fees and so on
- Potentially a closing payment – if you go for PCP, you’ll also pay what’s known as a ‘balloon payment’ at the end of the agreement if you wish to own the car outright
It’s important to consider the annual mileage you’ve agreed to, as you’ll likely be penalised for exceeding this (or charged a fee if you wish to amend your limit). Excess mileage fees are calculated per mile based on how many miles you’ve gone over by. You’ll also potentially pay lease-end fees, with penalties if you need to exit the lease early.
Of course, in addition to these costs, you’ll also need to factor in the running costs of the car – not just the fuel, but the road tax, insurance, maintenance, breakdown cover, new tyres, and so on (though you may have the option to pay extra for a maintenance and service package as part of your lease). You can read more about this in our post on the average costs of running a car.
All-inclusive car subscription
All-inclusive car subscriptions put a different spin on the concept of leasing a car. They take the model you know and love from online streaming and other ‘pay monthly’ services and apply it to the automotive world, transforming ‘car ownership’ into ‘car usership’. For a single, fixed monthly fee, you get the use of a car with all the running costs taken care of – tax, fully comprehensive insurance, servicing, repairs, breakdown cover, you name it. You just add the fuel or charge the car and away you go.
Another key difference between car subscription and car leasing is the level of commitment needed from you. With leasing, you’re typically tied in for several years, during which time you could potentially be stuck with a car you don’t need, can’t afford, or that’s not right for your changing circumstances. A car subscription gives you the freedom to change the car at any time, or hand it back, as you’re only ever committed to a month at a time.
All-inclusive car subscription costs overview
As we’ve just touched on, the beauty of a car subscription is that the costs are much simpler when compared with a traditional car lease. A big reason for that is that they’re all-inclusive, covering all the main expenses associated with car ownership, such as:
- Road tax
- Fully-comprehensive insurance
- Breakdown cover
- New tyres
- Maintenance and repairs
This simplifies budgeting because you’ll always know what your car will cost and you won’t have the worry of unexpected repair bills.
Upfront payments differ, too. With leasing, you can typically expect to pay the equivalent of six months’ payments upfront, or 10% of the car’s value, depending on the type of lease you go for. With a car subscription, you just pay for one month upfront, and you get that back when you return. The only other fee you’ll need to think about is the one-off delivery charge, if there is one.
Finally, unlike some types of car lease, there’s no interest to worry about, and depreciation is a cost you won’t have to factor in.
Advantages of all-inclusive car subscriptions
As well as the convenience of having all your running costs included in your monthly payment, the overwhelming benefit of an all-inclusive car subscription is the freedom it gives you. When you’re only ever committed to one month, you’re free to adapt your car usage to suit your lifestyle, which can easily change during the course of the two to four year periods you’d be tied into with a traditional lease.
Overall, car subscription can work out as a cheaper option than a traditional lease, particularly when you factor in the upfront payments. While some lease options may be better suited to you if you ultimately want to own a car, subscription offers something money can’t buy: freedom.
If you’d like to simplify your car costs, take a look at our website to find out more about the Drive Fuze car subscription service.