How does it work?

* Avoid the hit of depreciation... * ...just be sure to read the small print * Follow our guide to leasing a car...

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What Car? Staff
23 December 2011

How does it work?

Borrowing is about to become the new owning. In the past 12 months, the number of new cars acquired on car-leasing schemes has increased by more than a third. Monthly repayments for many lease deals can be up to 50% lower than those for loans or hire-purchase deals, so its hardly surprising that leasing is now more popular than personal loans.

Thats why more than 100 million was granted to new car buyers in the second quarter of 2011, compared with just 66 million in the same period in 2010, according to the Finance & Leasing Association (FLA). However, leasing isnt for everyone, and its essential that you read the small print, because its all too easy to end up shelling out more than you bargained for.

How does it work?
On paper, leasing (also called personal contract hire) is one of the most straightforward ways to fund a car. It works in exactly the same way as renting a house or apartment; you pay the finance company a deposit up front, and then fixed monthly payments for the duration of the lease.

Lease periods are usually two or three years, although some companies offer more flexible terms. Youll never own the vehicle, and so wont have to shoulder the cost of depreciation or the hassle of disposing of the car. Leasing also gives you the flexibility of being able to change your car frequently and to afford a more upmarket model than your budget would normally allow.