Leasing a car: the benefits and pitfalls - Are there other financial implications?

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There's good news and bad news.

If you are on a contract hire or PCH deal and VAT registered you can reclaim 50% of the VAT on the finance costs and 100% of the VAT on a maintenance agreement.

Individuals on PCP or PCH deals cannot reclaim any VAT, however.

Potential financial penalties include going over an agreed mileage allowance, charges for ending your contract early and charges for any damage incurred greater than reasonable wear and tear (see 'Looking after your car').

Penalties for going over an agreed mileage rate are usually outlined in the initial contract, although it is often best to contact the lease company as soon as you know you will go over your limit and see if they will renegotiate your deal at a more favourable rate.

How much you will be penalised for ending a contract early depends on the type of contract you have.

PCP is usually the easiest type of lease to end early, whereas contract hire deals typically require you to pay 50% of the outstanding lease fees.

The most important thing is to read the contract carefully before you sign, as each one is different. Make sure you check what penalties you will have to pay if you end the contract early, because once you've signed, you've agreed to them.

In the event of the person taking out the lease dying, a contract will normally state that if the car is returned there is no penalty.

GAP insurance offer in association with What Car?


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