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How much does it cost to lease a car?

April 29, 2024

How much does it cost to lease a car?

When you can’t afford to buy a car outright, or you want the benefits of a newer car than you may be able to afford, one option is to lease a car. This offers several benefits over traditional car ownership, bringing both private individuals and businesses a greater degree of flexibility as well as alleviating the need for a large upfront investment. Little wonder that its cost-effectiveness means it’s growing in popularity – but what does it cost, and is it the most affordable option?

Understanding car leasing costs

A car lease is a long-term rental agreement that gives you all the benefits of owning a car without having to buy one, and we’ve covered it in more detail in our car leasing explained article. There are different types of car leases, and although they all involve making monthly payments, there are slight differences to be aware of. For example, a Personal Contract Purchase (PCP) lets you lease the car for an agreed period (usually two to four years) with the option to hand it back or buy it at the end. A Personal Contract Hire (PCH) is similar but without the option to buy at the end.

Whichever type of lease you choose, you’ll usually need to factor in the following payments when taking out a car lease contract:

Initial deposit – this is usually 10% of the car’s value or the sum of six months’ payments; the amount you pay upfront will affect the amount you pay each month once the contract starts

Monthly payments – depending on the kind of lease you take out, these monthly payments may also include interest, and they’ll be higher if you pay a lower initial deposit

A closing payment – if you’re on a PCP contract, which is similar to a lease, you’ll pay a closing ‘balloon payment’ at the end of your lease term if you want to buy the car

When you sign up for a car lease, it’s easy to focus on the monthly payments when you’re working out your budget. But you’ll also need to factor in all the normal costs of running a car – such as car tax, insurance, maintenance and so on. What’s more, there are ‘hidden’ costs, including:

Depreciation: this is the rate at which a car loses its value over time, and if you pick a car that depreciates quickly, you’ll effectively be making higher monthly payments relative to the car’s value

Residual value: some cars have a higher resale value than others, and you’ll generally find that the higher the resale value, the lower the lease costs

Lease term and mileage allowance: a longer lease term can mean higher costs, particularly if you’re also paying interest; your contract will also be tied to an annual mileage allowance, and you’ll pay more if you want to do more miles

Extra fees: many car lease agreements have acquisition fees, registration and other admin fees, plus taxes such as VAT

Average car leasing costs

With this in mind, what sort of monthly lease cost – just the monthly repayments, not the total cost of running a leased car – should you be expecting to pay?

Well, a compact car (such as a Fiat 500 or Toyota Aygo) would likely set you back somewhere in the region of £200 to £300 a month*, while a more luxurious car could see you paying upwards of £500 a month depending on the model. Electric and hybrid cars can represent good value, as leases can be competitive due to the lower running costs.

Petrol and diesel cars may vary in lease cost due to factors such as market demand and fuel efficiency. It’s also worth noting that lease costs can vary from one area to another, with urban areas often seeing higher lease costs than rural ones due to higher demand.

Benefits of leasing versus buying

With all these different costs to factor in, it’s not always easy to work out whether a lease offers reasonable value for money compared to buying a car outright. A lease offers lower upfront costs, and predictable monthly payments that you can budget for. You won’t need to worry about selling the car when your agreement comes to an end – you can just hand the keys back, and it’s also easy to upgrade to a newer model at the end of your lease term if you wish. Some lease agreements include warranties that cover things like maintenance and repairs.

Factors to consider before leasing a car

Before taking out a lease, it’s worth drawing up a budget that takes into account all the costs we’ve talked about here, and calculating what you’ll spend both monthly and across the whole duration of your lease. Keep mileage restrictions in mind, and consider how many miles you realistically do each year – this will affect your monthly payments. Remember to think about what happens at the end of the lease term, including whether there are penalties such as excess wear and tear or mileage charges when you hand the car back.

Of course, it’s also important to remember that leasing isn’t the only alternative to owning a car outright. A car subscription, like those we offer here at Drive Fuze, wraps up all your monthly car-related expenses into one, including comprehensive insurance, tax, servicing, maintenance, breakdown cover and fear of wear and tear on tyres. With this truly all-inclusive model of car ‘usership’, all you need to think about is refuelling or recharging and you’re good to go – much easier for budgeting. Not only that, you’re not tied into years-long agreements, as you only ever commit to a month at a time, and you’ll get your one-month deposit back when you hand back the keys.

Ready to find out more? Browse our site to see the car models we have on offer, or visit our car subscription support pages to get answers to all your questions.