Car leasing for young drivers: How does it work?
If you’ve recently passed your test or are still classed as a young driver (which you are if you’re aged 17-24), it can be difficult finding a car which has everything you want but one which is also affordable.
However, car leasing may be able to give you everything you need. And here’s a guide on how.
Can young drivers lease a car?
Yes. Nowadays, more and more young drivers are turning to car leasing. In fact, it’s estimated that 1 in 5 young drivers lease their vehicle.
There are many reasons why young drivers may choose to lease, which we’ll get onto in a bit more detail later, but the fact its affordable, hassle-free and flexible are all helpful characteristics.
Of course, not all young drivers can lease a car. As it’s a financial agreement, you have to be 18 or over. Also, you have to have a full driver’s licence and pass a credit check, which can sometimes be harder if you’re younger.
Can young drivers get a car on finance?
Car leasing is a type of finance agreement, and because you’re borrowing money, you need to be able to prove you can pay it back.
Before accepting you for a car lease agreement, your lender will check your credit file and score to make sure you’re “creditworthy”. Essentially, they’re checking to ensure that if they lend you money, you’re going to pay it back.
However, one issue some young drivers have is when it comes to applying for a car lease is they haven’t been able to build up enough of a credit profile.
That’s because having no credit is similar to having bad credit; because you haven’t shown you can handle debt yet.
It can be frustrating as a young driver if you have limited or no credit history. Especially if it’s because you’ve been living within your means and haven’t needed or wanted to take out a finance agreement yet.
However, if you’re a young driver with no or poor credit, it doesn’t mean you’re going to automatically be declined for a car lease.
How to get a car lease as a young driver
Here at Zero Deposit Car Leasing, we work with lenders who specialise in helping those with bad credit or no credit history at all.
And it’s easy to see if you’ll be accepted without affecting your credit score.
Our Apply Now feature carries out a soft check on your credit file which allows us to find the right lender for you.
And because it’s a soft check, it won’t show up on your credit file or harm your score.
Some dealerships will only use hard checks to see if you’ll be accepted. However, the issue with a hard check is that if you have too many in a short space of time – usually three in a year – then it has a negative impact on your credit score.
That’s because it looks as though you’re desperate for credit, which may put other lenders off.
But by using an initial soft check, we can determine whether you’ll be accepted or not without harming your credit score – even as a young driver. Just click Apply Now.
Are there other finance options for a young driver?
If you’ve been declined for a personal contract hire agreement, otherwise known as a lease, don’t worry. Even as a young driver, you still have lots of other options.
Three of which are a guarantor loan, personal contract purchase (PCP), or hire purchase.
One way around having no previous credit is by getting a guarantor to be named on your agreement.
Their role is to act as a safety net for the finance company. If you can’t or don’t make your monthly lease payment, they’ll be responsible to cover it on your behalf.
Your guarantor is usually someone with good credit who’s tied to you in some way, such as a family member.
However, before your guarantor agrees to enter the financial contract with you, they must be aware that if you can’t pay, they’re legally obligated to do so. And if they can’t or won’t, it’ll damage both of your credit scores.
Personal contract purchase
Another car finance type is personal contract purchase, or PCP.
PCP shares a lot of the same benefits as a lease, but it gives you a little more flexibility when it comes to the end of your agreement.
Like a lease, your monthly payments only cover the vehicle’s depreciation over the course of your term. However, instead of having to hand the car back when your contract is up, as you must with a personal contract hire (lease) agreement, with a PCP, you have three options.
You can still hand the car back if you wish; walk away and start a new contract. But you can also part exchange it for another model or even make what’s known as the balloon payment and keep the vehicle.
The balloon payment is what the car is expected to be worth at the end of your agreement, otherwise known as the guaranteed minimum future value (GMFV). It’s worked out at the start of your contract by using industry estimations and your mileage.
It’s usually a much larger payment than you’d have been making monthly, but it does give you the option to own the vehicle outright when your agreement ends.
How does a lease differ from a PCP?
As said earlier, lease agreements and PCPs share a lot of the same benefits; however, there are some differences.
The end of your agreement
Instead of having to hand the car back – as you do at the end of a lease – on a PCP, you can part exchange your vehicle for another or pay the balloon payment and keep it.
The likelihood of being accepted for finance
There’s more chance of you being accepted for finance on a PCP agreement than a lease, so it may be a better option for some young drivers with bad or no credit history.
Read more differences between leasing and PCP in our dedicated guide: PCP vs PCH: Which Lease Type Is Right for You?
The third car finance option you have is a hire purchase agreement.
A hire purchase agreement is where you split the total cost of the car evenly over a set period; usually 36 to 60 months.
As you’re not just paying the car’s depreciation while you drive it, as you are on a lease and PCP, the monthly payments are usually higher.
However, with a hire purchase, you own the vehicle outright at the end and it’s usually the easiest car finance option to be approved for.
How does a lease differ from a hire purchase?
Unlike a lease and a PCP, there’s a stark contrast between leasing and getting a car on hire purchase – albeit both allow you to drive the car you want without having to make a big upfront payment.
On a personal contract hire agreement (lease), there’s an annual mileage restriction you have to stick to. You decide this at the start and it helps work out your monthly payment.
However, with hire purchase, there’s no mileage allowance. That’s because, with hire purchase, you’re paying to own the car at the end, rather than just covering the vehicle’s depreciation.
Typically, a hire purchase agreement is longer than a lease. Most hire purchase deals last between 48 to 60 months, although you can get them shorter if you can afford it.
Meanwhile, on a lease, contracts tend to run between 24 months to 48 months, so you can change your car more often.
Usually, monthly payments are lower on a lease than they are on a hire purchase agreement. That’s because you’re only covering the vehicle’s depreciation on a lease, rather than the vehicle’s total cost as you do with hire purchase.
The end of the contract
Already alluded to, but at the end of your hire purchase contract, the car is yours. You can then keep it, sell it, or part exchange it and use the vehicle’s worth as a deposit on a new car.
However, on a lease, you never own the vehicle. At the end, you simply hand the car back and walk away – like a long-term rental.
It’s usually notably easier to get accepted for a hire purchase agreement than a lease. Just note, though, that if you have bad or no credit, your interest rate will likely be higher than if you had good credit.
Read more about whether you should lease or buy your next car using our guide: Leasing vs Buying A Car: Which One Should You Choose?
How much does it cost to lease a car?
Leasing a car is often the cheapest way to get behind the wheel of the car you want. That’s because you never pay the full cost; only the vehicle’s depreciation while you drive it.
Because of that, you can usually drive a more expensive vehicle than you would otherwise be able to afford.
There’s no fixed cost to lease a car, as each vehicle and applicant is different. For example, a young driver with no credit will likely pay more for a Mercedes-Benz A-Class than if they were to lease a Fiat 500.
However, these are the factors a lender takes into consideration when calculating your monthly payment.
The cost of the vehicle
As you’d expect, the cost of the vehicle you’re interested in leasing plays a big role in how much you pay.
Although leasing is a great way to drive a more expensive car for less, the higher the list price, usually the more you’ll pay each month.
How well the vehicle holds its value
If you choose a car that holds its value well – which you can see if you compare the price of a new and used model – then you’ll pay less each month compared to a vehicle that doesn’t.
That’s because your monthly payments cover the difference between what the car is worth at the start of your lease and what it’ll be worth at the end – the depreciation. And if your vehicle holds its value well, there’s less of a gap to cover.
As you’re covering the cost of the vehicle’s depreciation during your contract, the more miles you predict you’ll do, the higher your monthly payments.
That’s because the car will be worth less at the end of your agreement.
All our vehicles here at Zero Deposit Car Leasing come with £0 deposit. However, if you wish to lower your monthly payments and have access to a lump sum, you can choose to make a deposit to bring the cost of your lease down.
Usually, the longer your agreement, the lower your monthly payments. However, it does also mean that you’ll pay more in interest, so you may end up paying more over the course of your agreement.
Is insurance needed on a lease car?
Yes, like all vehicles in the UK, you have to insure your lease car to drive it on a public road.
At Zero Deposit Car Leasing, we don’t include insurance in our deals because we find that customers are able to get a better insurance deal when they make their own application.
It also gives you more choice when it comes to which provider you choose, so you can tailor it to your needs.
Another insurance type which isn’t mandatory but one we always recommend is GAP insurance.
You can add it to your finance agreement and it’s there to protect you financially in case your vehicle is stolen or written off.
If your vehicle was stolen or written off – a total loss – then your insurance company would only pay you what your car was worth on that day. They don’t take into account if there’s any finance outstanding on the vehicle or how much you paid for it.
If this happens, it can leave a big deficit to make up – and if your insurance payout doesn’t cover the cost of how much you still owe to the finance company, you have to make up the difference.
That’s where GAP insurance can help. It’s there to top up your insurance payout so that if the worst was to happen, you have the money to repay your entire finance agreement and then are free to start another deal.
There’s also GAP & RTI insurance which stands for return to invoice. That means if your vehicle was written off or stolen, your payout would be topped up to how much you owe on finance or how much the vehicle cost to begin with – whichever is higher.
Let’s use it in an example.
So, if your vehicle is valued at £9,000 when it’s stolen or written off and you still owed £11,000 on the finance, you’d have to cover the £2,000 gap between what the car is worth and how much you owe yourself.
However, with GAP insurance, that £2,000 would be covered. And let’s say the cost of the vehicle was originally £13,000; with GAP & RTI insurance, you’d get another £2,000 – taking you up to the original £13,000.
That means you then have an extra £2,000 to use a deposit on a new deal.
What happens at the end of a lease?
As you may already know, when your lease agreement ends, the car is handed back to the finance company. And as long as you haven’t exceeded your mileage allowance or caused any damage outside of fair wear and tear, there are no extra charges.
You’re then free to find a new agreement.
However, before you get to that point, it’s important to know what the process entails.
Check your contract
Before you sign the lease contract, check your lender’s returns terms and conditions.
While most lenders will make you aware that your contract is coming to an end and organise the collection of the vehicle, some won’t.
If that’s the case, you’ll have to be proactive and organise the handing back of the vehicle yourself. If you don’t, you could face penalty charges.
Also bear in mind that some lenders won’t do collections on a weekend or Bank Holiday, so make sure you organise your collection with plenty of notice if it’s down to you.
Get your car ready to be handed back
Before you hand the vehicle back, it’s important to get it ready.
When the lender comes to collect your vehicle, they’ll send someone to check it over inside and out for any damage outside of fair wear and tear.
Before you get to that stage, it’s advised you do these checks first; making sure there’s no damage to the vehicle and that everything works as it should.
If something is broken or there’s damage to the vehicle, it might be worth getting a quote to see how much it’ll be to fix from a local, professional garage – as if you hand the car back faulty or damaged you’ll face penalty charges.
Also, doing a clean inside and out will not only let you see if anything needs to be addressed before you hand it back, but it can also be a great time to make sure you’ve removed all your possessions from the car.
What is fair wear and tear?
When you hand your car back after the end of your lease agreement, it’ll be inspected in accordance with fair wear and tear guidelines.
These are industry-wide guidelines which are designed to protect both you and the leasing company.
It’s to make sure that you don’t get charged for damage or wear that would be expected on a vehicle of its age and condition, and also so that the lender isn’t left with a car that’s worth less than the expected value.
For example, a lender won’t expect a three-year-old car to have the same tyre tread depth as it did when it left the showroom. Nor would they expect there not to be a couple of stone chips in the paintwork, perhaps.
But at the same time, if there’s half a bumper missing or tears in the interior trim, that’s not going to be accepted as fair wear and tear.
If you want to find out more about fair wear a tear, you can contact your lender for the full guide.
Can I hand my lease back early?
Most lease agreements are designed to last the entirety of the contract. That means if you take out a three-year lease, it’s designed to last all three years.
There may be an option to hand the car back early in your contract; however, it’s important to check the terms before doing so as it can come with big penalty charges.
Depending on how far you’re into your agreement and how much you’ve left to pay, you may have to repay the remaining balance in full before you can hand the car back.
Benefits of car leasing for young drivers
If you’re a young driver, car leasing comes with several benefits. We’ve already covered most in this guide, but below is a condensed view.
One affordable monthly payment
With a lease, your monthly payments are fixed and usually lower than other types of finance. That means you can enjoy a better car for less and you always know how much it’s going to cost.
You can include maintenance packages in your lease agreement to cover the cost of any maintenance needed during your lease term, such as servicing and MOTs.
Breakdown recovery is included in most of our lease deals.
As most lease deals are available on new or nearly-new cars, you can drive with confidence knowing if anything goes wrong you’re covered by the manufacturer’s warranty.
We also provide additional warranty cover which you can find out more about from your account manager.
Road tax is included in most of our lease deals.
You can include tyre cover in your lease agreement to cover the cost of repair or replacement when needed.
Drive the car in its best years
As lease agreements are usually on new or nearly-new vehicles, you can drive the car in its best years. That means less is likely to go wrong and you’ll often find insurance premiums are lower for a more modern car versus an older one.
Change your car more often
As lease agreements are usually shorter than other forms of finance, you can change your vehicle more frequently.
It also means that if you have a limited or bad credit history, you can take advantage of better interest rates sooner by getting a new deal after you’ve built up or repaired your score through your current agreement.
No matter where you are in the country, if you choose to lease with Zero Deposit Car Leasing, you can have your perfect vehicle delivered directly to your door anywhere in the UK at a time that suits you.
Top tips for leasing for young drivers
When it comes to choosing your car and type of finance, only you know what’s best for your circumstances.
However, here are some tips for young drivers if you’re thinking about leasing.
Find the right car for you
If you’re a young driver, you’ll probably want to stay away from super-powerful or very expensive vehicles.
Although with a lease you can get a better car than you may otherwise be able to afford to buy outright, you also need to consider your insurance premiums as well as how much it’s going to cost to run.
Our leasing experts here at Zero Deposit Car Leasing can help you find the perfect car for you quickly and easily. Just get in touch here.
Pick the right terms
When leasing, it’s important to pick the right terms for your circumstances.
It might be tempting to choose the lowest mileage option to get a lower payment, for example. However, when your agreement ends, you’ll face excess mileage charges if you go over your allowance – which may end up costing you more.
So, make sure you’re comfortable with the terms of your agreement before you sign up and ensure they’re going to work for you.
Shop around for the best deal
When you’re looking for a lease, make sure you shop around and find the best deal before you sign up.
The best deal can be different for different people. For example, the monthly payment might be the most important thing – but bear in mind a low monthly payment sometimes comes with a big deposit.
On the other hand, having a little or no deposit could make a deal the best in your eyes, as you don’t have to make a big upfront payment.
Or, you could enjoy the best of both worlds, with low monthly payments and £0 deposit – as we offer here at Zero Deposit Car Leasing.
Deal with a trusted supplier
When you’re looking for your perfect vehicle, also make sure it comes from a trusted supplier.
A company with good customer reviews and one which is easily contactable when you need them. Without that, you may end up getting more than you bargained for – and not in a good way.
Here at Zero Deposit Car Leasing, we’re always on hand to help if you need us, over the phone, via email, through live chat or in person at our state-of-the-art showroom in Lancashire.
As part of Hippo Motor Group, we also have an Excellent rating on Trustpilot from thousands of customer reviews
Start your leasing journey
If you’re now ready to start your leasing journey and find the right car for you, all you need to do is click Apply Now.
After you’ve filled in a short form, you’ll be assigned a dedicated account manager who’ll contact you with an approval from one of our trusted lenders and then begins the fun part; ordering your perfect vehicle.
It’s quick and simple, just Apply Now.
Alternatively, if you’re still unsure if leasing is right for you, you can read our other guides around car finance types below.
- What Is Personal Contract Hire And How Does It Work?
- Personal Car Leasing: What You Need To Know & What Type Of Finance Is Best For You
- PCP vs PCH: Which Type Of Finance Is Right For You?
- What Is Personal Contract Purchase and How Does It Work?