What Happens At The End Of A Car Lease?
As leasing specialists, we get asked this extremely common question on nearly every leasing call we take. Whether you know how leasing works, or if it’s all new to you, it’s important that you know what your options are at the end of the lease you are choosing.
Here we write a quick guide to break down the different leasing contracts available, what happens at the end of each car lease and finally we’ll conclude with some tips and tricks to consider before returning your car at the end of the lease contract.
CAR LEASING IN GENERAL
Car leasing, generally speaking, is a way to finance a car that you couldn’t ordinarily afford to pay for outright, or that you simply don’t want to pay huge amounts up front for. It allows people from all different financial backgrounds to pay monthly for a brand new or nearly new car over a set period of time, with different options at the end of the car lease.
THE 3 MAIN TYPES OF LEASE
- CONTRACT HIRE
- HIRE PURCHASE
- PERSONAL CONTRACT PURCHASE
HOW DOES CONTRACT HIRE WORK?
This is often the most common way of car leasing. Simply choose a car, pay a deposit (if any), agree on a timeframe, monthly fee and annual mileage allowance and drive the car away. You will then pay the agreed monthly payments to lease that car, for the stated term (usually between 24-48 months).
You will never be the registered keeper of the car. You are effectively ‘renting’ it off the lease company for the agreed term.
Your monthly payments on a contract hire lease will often be lower than other leases as you don’t have to take into account the depreciation costs, or residual value at the end.
WHAT HAPPENS AT THE END OF A CONTRACT HIRE AGREEMENT?
- RETURN THE CAR – As long as the vehicle is returned within the agreed timeframe, mileage and wear and tear guidelines. There are no strings attached or extra charges.
- You are free to walk away or you can simply start a brand new lease agreement on another new car.
HOW DOES HIRE PURCHASE WORK?
With Hire Purchase or HP, any initial deposit you decide to pay and monthly payments will all go towards paying off the entire cost of the car. You choose the deposit amount, you choose the monthly payment amount (which will include interest) and the timeframe based on your financial capabilities. It’s a great way of ‘buying’ a car without having to pay huge amounts upfront. It’s essentially spreading the cost of your new car over a timeframe of your choice.
If you have good credit, you will also pay less interest on the car over the HP agreement, meaning you may save money overall.
WHAT HAPPENS AT THE END OF A HIRE PURCHASE AGREEMENT?
- YOU OWN THE VEHICLE – The car is yours and you take full ownership
- No balloon payments need to be made as it was all included and calculated at the beginning
- As you now own the car, you can do what you please. Walk away and keep it, sell it on, or part exchange it towards another car or lease
HOW DOES PCP (PERSONAL CONTRACT PURCHASE) WORK?
This is essentially the best of both worlds, and a good option is you’re not sure that you’d like to do at the end of the lease term. Again, they start the same. Choose a car, place down a deposit (if any) and pay fixed monthly payments for an agreed period of time.
The difference with a PCP lease deal is that at the beginning of the term, a guaranteed minimum future value is calculated, often known as a residual value. This then acts as a balloon payment at the end of the term.
WHAT’S A MINIMUM FUTURE VALUE / RESIDUAL VALUE?
It’s an important factor in a PCP leasing agreement as it’s a calculation, by the leasing company, of how much the car will be worth when the lease ends. For instance, the leasing company might calculate that a car worth u00a330,000 today will be worth u00a315,000 at the end of your lease in 3 years’ time. They will then base your monthly PCP costs to cover that loss in value.
WHAT HAPPENS AT THE END OF A PCP (PERSONAL CONTRACT PURCHASE) AGREEMENT?
You will have 3 options;
- RETURN THE CAR u2013 Just like contract hire. As long as the vehicle is returned within the agreed mileage and wear and tear guidelines you can walk away, no strings attached or extra charges. You can also choose to start a separate, brand new car lease.
- BUY THE CAR u2013 as long as you pay the final payment that you initially agreed when taking out the lease, known as a balloon payment (future value figure/ residual value), then the car is legally yours to drive away and take full ownership of and do what you wish with
- PART EXCHANGE u00a0and upgrade to a new car
So we hope it’s now a little clearer what will happen at the end of your car lease. Regardless of what you choose to do at the beginning or end of your lease, try to keep the following factors in mind throughout your term, and when you return the lease car.
When you are arranging your lease with the leasing company, you’ll discuss and decide on an annual mileage amount. Obviously, this is hard to calculate, especially for new drivers or people that don’t do similar journeys week by week. Everyone understands this of course, but although you might pay a bit more by being lenient with the number of miles you’ll think you’ll do over the year, if you are too tight and go over the amount agreed, it could end up costing you more.
Excess mileage costs will often differ depending on your car and type of lease you choose. You will be made aware of the excess mileage costs for your particular car at the outset. If you are on a contract hire, you will be charged per mile, if you exceed your initial agreed miles. For a PCP, if you exceed your annual mileage, then this will affect your vehicles future value when you trade it in or hand it back.
BVRLA’S FAIR WEAR AND TEAR
We receive 100’s of lease cars back each month, and they arrive in all kinds of conditions. Here’s a little guide on what we, and BVRLA, will accept as fair wear and tear.
The BVRLA is the British Vehicle Rental and Leasing Association. They have put guides in place to not only protect the finance companies but to protect consumers as well.
We can’t expect that the lease car will come back exactly as it left, in showroom condition, but of course, it does have to have been well looked after. We advise that you check over your car thoroughly before you return it;
- Ensure that there is no major damage, dents or scratches u2013 if there are, it might be an idea to talk to a bodywork specialist and get it priced up. It may be cheaper to repair yourself, but do BE AWARE that in many contracts this also isn’t allowed.
- Ensure that everything is in working order, electrical and safety features
- Are there any warning lights on in the car? Does it need oil and water for instance?
- Check for rust and corrosion
- Ask yourself, would you happily buy or lease this car in this condition
- Is the car roadworthy, mechanically sound?
- Ensure that the car looks as good as it can for its age and condition u2013 getting it professionally valeted before you return it is always a good idea. Although it isn’t a requirement, you can imagine when a leasing company receives one of their cars back full of food, stains and rubbish, it shows that you haven’t really respected the car. A valet will help to remove any built-up dirt, scuffs and stains and make the car look as the leasing company are expecting it to look.
MY LEASE HAS ENDED AND IT’S TIME TO GIVE THE CAR BACK, WHAT NOW?
If your lease has ended and it’s time to give the car back, or part-exchange it, contact us ASAP so we can let you know the options. Ordinarily, we will just arrange to collect the vehicle off you but if you have arranged another lease we prefer, where possible, to do the pick-up and drop off at the same time, making it easier for you and us.
We hope this article has helped with what to do at the end of your car lease. If you still have any questions at all, please do feel free to contact us through the website either by filling out the form or by chatting to one of our advisors, on the phone or via email.