Car leasing explained with 
Car leasing with Drive: how it works and how to decide
Choosing your next car means making two decisions. Which car suits your life, and how do you want to pay for it? Leasing is worth a look if you'd like a new car for a fixed period without buying it, or having to sell it afterwards.
A low monthly rental is only one thing to consider. The upfront payment, mileage allowance, running costs and return conditions all decide whether a deal is a good one for you.
This guide covers how leasing works, how it compares with Personal Contract Purchase (PCP), and what to check before you commit. Whether you're replacing a family car, thinking about going electric or looking for a business vehicle, start with what you need and what you can afford. The headline price comes later.
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What is car leasing?
Leasing is a long-term rental. You pay to use a car for a set period and hand it back at the end.
For private drivers it's usually called Personal Contract Hire, or PCH. Before you take delivery, you agree the length of the contract, your mileage allowance and your monthly rental.
The car belongs to the leasing company. Your payments cover the use of it, so you don't build any ownership, and a standard PCH agreement has no option to buy.
That suits people who like to change cars regularly and don't want the hassle of selling or part-exchanging. It also means you finish the agreement with no car to keep and nothing to sell.
Is leasing the same as PCP?
No. Both spread payments over an agreed period, but you get different choices at the end.
With leasing, you return the car. With PCP you can usually return it, pay the optional final payment (and any purchase fee) to keep it, or swap into another car.
If there's any chance you'll want to keep your next car, that difference matters far more than a small gap in the monthly payment.
How car leasing works
A lease quote bundles the car and the agreement together. Change the specification, initial rental, contract length or mileage allowance and the price changes with it.
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1
Choose a car that fits your everyday life
Think about how you'll use it for the whole agreement: passenger space, boot size, parking, accessibility and the journeys you make most.
A compact hatchback may be perfect for commuting and a squeeze once you add a pushchair, luggage and passengers. A bigger car than you need will push up both the rental and the running costs.
If you're looking at an electric car, think about where you'll charge it, how often you do longer trips and whether the range leaves you a comfortable margin.
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2
Set a realistic mileage allowance
Use your current car's records to estimate your annual mileage, and include commuting, school runs, weekends, holidays and the odd long trip.
As a worked example, a 30-mile round-trip commute three days a week for 46 weeks comes to 4,140 miles before you've driven anywhere else.
Don't pick a low allowance just to shrink the monthly rental. Ask for quotes at a few different mileage levels and weigh the extra monthly cost against what excess mileage charges could add up to.
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3
Pick the contract length and initial rental
A longer agreement can bring the monthly rental down, but it ties you in for longer. Ask yourself whether the car will still suit you if your job, family or travel plans change.
The initial rental is an upfront payment towards the lease. It isn't a refundable security deposit. A bigger initial rental can lower your monthly payments, but compare the total you'll pay before treating that lower monthly figure as a saving.
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4
Check the terms and apply
Look closely at the payment schedule, fees, what's included, cancellation terms and the expected delivery date. Applications are subject to the provider's credit checks and eligibility rules.
Ask questions before you sign, particularly about what happens if your mileage changes or you need to end the agreement early.
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5
Look after the car and plan its return
During the lease, keep to the servicing requirements and keep records. Check what your agreement says about repairs and maintenance.
Before collection, compare the car's condition with the return standards. Leave yourself time to fix missing items or damage, so you don't find out about a problem on collection day.
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PCP vs leasing: which is better?
Neither wins outright. It depends on whether you want to own the car, how long you plan to keep it and what the actual quotes look like.
Personal Contract Hire (leasing) versus Personal Contract Purchase (PCP)
| Category |
Personal Contract Hire (leasing) |
Personal Contract Purchase (PCP) |
| What you're paying for |
Use of the car for an agreed period |
A finance agreement with an option to buy |
| Upfront payment |
Initial rental |
Deposit, where required |
| Ongoing payments |
Fixed monthly rentals |
Fixed monthly finance payments |
| Can you own the car at the end? |
No, not under a standard PCH agreement |
Yes, once you've paid the optional final payment and any purchase fee |
| If you hand it back |
Mileage and condition charges may apply |
Mileage and condition charges may apply |
| Value towards your next car |
None, as you have no ownership stake |
Possibly, if its trade-in value is higher than the outstanding finance. This isn't guaranteed |
| What to compare |
Total rentals, fees and inclusions |
Deposit, repayments, interest, fees and the optional final payment |
When leasing may suit you
Leasing is worth comparing if you expect to hand the car back, can estimate your mileage fairly well and are happy to commit for the full term. It also appeals to people who like a clear end point: return the car, settle any charges and choose what's next.
It is still a commitment, though. Don't think of it as a subscription you can drop whenever you like.
You can explore car leasing with Drive and compare the latest leasing deals available.
When PCP may suit you
PCP is worth considering if you want the option to keep the car. If that's a realistic possibility, look at the optional final payment now. Could you cover it from savings, or would you need to borrow more? Refinancing later would be a separate decision with its own costs and approval checks.
Don't count on your current car producing a deposit for the next one either. Any positive equity depends on what it's worth compared with the finance you still owe.
When buying may be a better fit
If you expect to keep a car for many years, drive unpredictable mileage or want to be free to sell whenever you choose, compare buying outright, Hire Purchase and a personal loan as well.
Look at used cars too. The most useful comparison is between cars and payment methods that meet your needs, which can be more revealing than comparing two ways of paying for the same new car.
How to make your decision
Six questions will get you most of the way.
- Do you want to own this car eventually? If so, compare purchase options rather than leaning on a lease.
- How predictable is your mileage? If it swings a lot, read the allowances and excess charges carefully.
- How settled is your situation? A new job, a growing family or a house move could change the car you need.
- Can you comfortably afford the upfront payment? Leave room for insurance, running costs and surprises.
- What happens if you need out early? Get the costs explained before you commit.
- Are you choosing this car because it suits you, or because the monthly price looks good? A cheap deal on the wrong car is poor value.
Personal and business leasing
Personal car leasing
Personal Contract Hire is an agreement taken out by an individual. Compare prices including VAT, and budget for the full cost of running the car. Your quote should spell out the initial rental, the monthly payments, the mileage allowance and any extra fees.
Business adverts often show prices excluding VAT, so check what each quote includes. A business price and a personal price can look quite different before you even get to differences in terms or eligibility.
If you're choosing a vehicle through your business, work out who will sign the agreement, how the car will be used and which product fits. Speak to your accountant about the financial and tax position for your circumstances, rather than assuming business leasing is always cheaper.
Business car leasing
Business Contract Hire is taken out by a business and provides vehicles for business use without buying them outright.
What costs should you consider?
Compare the whole cost of the agreement and of running the car, not just the monthly rental.
| Cost |
Questions to ask |
| Initial rental or deposit |
How much is due upfront, and when? |
| Monthly payments |
How many are there, and what do they total? |
| Fees |
Are there administration, delivery or collection charges? |
| Insurance |
What cover is required, and what will this particular car cost to insure? |
| Servicing and maintenance |
What's included? Who pays for tyres and other replacement items? |
| Fuel or electricity |
What will your normal driving cost? |
| Vehicle tax |
Is it covered for the whole term, and what happens if rates change? |
| Excess mileage |
What's the rate per mile, and does the quoted rate include VAT? |
| Return condition |
What standards apply, and what could trigger a charge? |
| Early termination |
How is the cost of ending the agreement worked out? |
Compare the total cost of lease deals
The basic sum is:
Divide that by the number of months to get an average monthly cost. It's a comparison tool and not what you'll actually pay each month.
Here's a fictional example of why the lowest advertised monthly payment isn't always the cheapest deal.
| Item |
Lease A |
Lease B |
| Initial rental |
£2,700 |
£300 |
| Monthly rentals |
35 x £300 |
35 x £350 |
| Mandatory fee |
£200 |
£200 |
| Total rental cost and fee |
£13,400 |
£12,750 |
| Average over 36 months |
£372.22 a month |
£354.17 a month |
Illustrative figures only, not real offers. The example assumes identical cars, mileage allowances and inclusions, with all figures including VAT.
Lease A advertises the lower monthly rental, yet Lease B costs £650 less overall and needs far less money upfront.
When you're weighing PCP against leasing, first compare what each costs over the same period if you plan to hand the car back. If you'd buy the PCP car, add the optional final payment and any fees, and remember you'd then own a car with some value left in it.
Allow for real-world running costs
Get an insurance quote before you settle on a car, and check tyre prices and servicing requirements too.
With an electric car, base your estimate on the charging you'll actually do. Someone who charges mostly at home will have a very different budget from someone relying on public rapid chargers.
Make sure the car still looks affordable once these costs are added. The agreement payment is only one part of your monthly motoring budget.
Why lease with Drive?
Drive brings together new lease offers from Volkswagen Financial Services, alongside used cars, expert reviews and buying guides.
That means you can research the car itself before looking at how to pay for it. Check whether the space, comfort, equipment and running costs suit you, then review the leasing terms available.
Start with a shortlist of suitable cars and a clear budget. Then compare agreements on the same basis, and don't let a headline payment make the decision for you.
Explore car leasing with Drive
Ready to look at your options? Visit Drive to see the leasing offers and vehicles available.
Before you enquire, it helps to know your comfortable monthly budget including running costs, how much you can afford upfront, your expected annual mileage, your preferred contract length, the space, features and fuel type you need, and whether you want maintenance included.
Check the final quote, availability and terms before you apply.
Car leasing FAQs
Sometimes, but not always. Compare real quotes for the same car, term, mileage and inclusions, and count upfront payments and fees. If you plan to buy the PCP car, include the optional final payment, and remember you'll own the car afterwards.
No. The initial rental is part of the cost of leasing the car. It isn't a refundable security deposit.
It normally means an initial rental equal to three monthly rentals, followed by 35 further monthly rentals, which makes a 36-month term. At £300 a month, that's £900 upfront and then 35 payments of £300. Check the full payment schedule and any separate fees.
You may have to pay an excess mileage charge. If your driving changes, contact the provider early and ask whether the allowance can be adjusted and what that would cost.
Don't assume it is. Check the offer and arrange the required cover before you drive the car. Make sure your insurer has the correct ownership and registered-keeper details.
It depends on the agreement. Ask exactly what a maintenance package covers, including servicing, tyres, exclusions and any rules about where the work must be done.
You may be able to, but early termination can mean a substantial charge. Ask the provider for a written quote and explanation. Early-exit arrangements that apply to PCP shouldn't be assumed to apply to leasing.
Not every mark is chargeable. Fair wear and tear allows for the normal deterioration of everyday use, and damage beyond that standard may be charged. Get the return guide early and inspect the car before collection.
Yes, depending on the provider's range and current offers. Look at charging access, your typical journeys and running costs alongside the rental price. Leasing changes how you pay for a car, but you still need to choose one that suits the way you drive.
Confirm the exact specification, payment schedule, mileage allowance, fees, inclusions, delivery arrangements, maintenance obligations, return standards and early-termination terms. If anything is unclear, ask for it to be explained in writing before you commit.
