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30th August 2024 
10 min read 
One of the biggest selling points of car leasing is that it’s generally considered the most affordable way of getting behind the wheel of a new vehicle every few years. This is true – leasing tends to offer you ‘more car for your money’ than any other buying or financing option.
However, like any other car financing option, personal contract hire (PCH) is still a long-term financial commitment with regular payment obligations. So, before you dive into any PCH deal, it’s important you fully understand the numbers behind one – and that’s exactly what we’ll go through in this guide to the costs of leasing a car.
If you’re already feeling clued up, you can always get stuck into our full leasing range.
How much does it cost to lease a car?
That’s a very broad question, and there’s definitely a “how long is a piece of string?” style element to answering it because the cost of a lease depends on so many factors. Monthly lease costs can start as low as £150 and spiral well into the thousands, depending on the car and package you want.
As for the average cost of leasing a car in the UK, a reasonable estimate would be around £300-£400 per month. But again, it all depends on what you’re looking for. More on that below.
Factors influencing the cost of leasing a car
Car make and model
This is the biggest factor in deciding your lease cost. When you lease a car, you’re essentially paying for the depreciation of the vehicle (its loss in value) over the course of the lease term, plus a few other bits like interest, taxes and additional fees. Your monthly payments will primarily be calculated based on the difference between the car’s initial value and its estimated value at the end of the lease term. So, the higher the value of the vehicle you’re interested in, the more you’re going to pay.
Lease term length
Generally speaking, longer leases come with lower monthly payments because the depreciation cost is spread over a longer period – and vice versa for shorter leases. This isn’t a hard and fast rule, though. Sometimes, you’ll find a “sweet spot” in lease term length that offers you the best value.
Initial payment
How much you put down upfront won’t impact the total cost of your lease, but it will affect how the cost is spread. Put down a higher initial payment to pay a lower monthly rate, or if you don’t have a lump sum, spread the total cost of the lease across higher monthlies.
Annual mileage limit
When you sign up for a lease, you’ll agree to an annual mileage limit. The higher this number, the higher your monthly payments to reflect the increased wear and tear on the vehicle. It’s important to be honest about your expected mileage, as you’ll be charged for any excess come the end of your lease.
Your credit score
The better your credit score, the more likely you are to access better deals with lower rates attached. Leasing is a type of finance agreement, and lenders perceive applicants with good credit as less risky to lend to, which in turn allows for lower interest rates.
If you want to find out where you stand, use our free soft credit check to see what deals you’d be pre-approved for without affecting your credit score.*
Breakdown of car leasing costs
Initial payment
The initial payment is the first monthly instalment of your deal. So, if you’re on a 24-month lease, you’ll make an initial payment plus 23 further fixed monthly payments. The reason the initial payment is important is it can be adjusted according to how much you want to pay upfront versus monthly.
With us, you can make an initial payment of three, six, nine or 12 months. The more you pay upfront, the lower your fixed monthly payments will be. You also have the option to pay no additional initial payment, often coined as a “zero-deposit” lease. With a zero-deposit lease, your first monthly instalment will be the same as the rest, with the total cost of the lease spread across each month rather than you having to come up with an initial lump sum.
Monthly payments
Your monthly payments are the fixed monthly cost of your lease. As mentioned earlier, your monthly payment amount will largely be based on the projected depreciation of your chosen vehicle across the lease term. They’re also defined by how much you put up for the initial payment and the length of your lease.
Additional fees and charges
There are a variety of additional fees and charges that may or may not be included as part of your deal:
- Interest: every lease deal comes with the cost of financing (the cost of borrowing the money to cover the total cost of your lease). Your credit score will be the defining factor in the interest rate you’ll pay.
- Taxes: such as VAT on your lease payments.
- Fees: additional fees like cost of acquisition, disposition and documentation.
- Excess mileage: if you exceed your annual mileage limit, you’ll pay a charge based on how many miles you’ve gone over the agreed limit.
- Optional extras: like maintenance, warranty and, in some cases, insurance may all play a part in your total lease cost.
These costs are part and parcel of any lease. Things like interest, taxes and fees will all be baked into your total cost calculation, as will any extras like maintenance, should you choose to add them to your lease.
Lease cost example
How does all of the above come together? Here’s a simple example of how a two-year lease costing £10,000 might break down:
Length of lease: 24 months
Total cost of lease (including additional fees and charges): £10,000
Initial payment chosen: 6 months
Initial payment amount: £2,068.97
Fixed monthly payment amount (for 23 months): £344.83
But what if you don’t have a few thousand pounds lying around for the initial payment? You can go for a “zero deposit” option which would look like this:
Length of lease: 24 months
Total cost of lease (including additional fees and charges): £10,000
Initial payment chosen: 0 months (in reality, this is actually 1 month, but many leasing companies call it “0” as you’re paying zero extra versus the rest of your monthly payments)
Initial payment amount: £416.67
Fixed monthly payment amount (for 23 months): £416.67
As you can see, opting for a zero deposit option cuts out the initial lump sum and spreads the cost evenly across 24 equal monthly payments. The trade-off in this example is paying just over £70 more per month in exchange for an upfront saving of just over £1,650 – it’s up to you to decide which option works best for you.
Comparing leasing vs buying
Is it cheaper to lease or buy?
The age-old question. Is it cheaper to lease or buy either outright or via a purchase agreement like a personal contract purchase (PCP) or hire purchase (HP)?
Generally speaking, leasing is the cheapest option in the short term. PCH deals tend to carry lower monthly payments than equivalent PCP or HP deals. Likewise, the equivalent initial payment will be lower than a PCP deal or, of course, buying outright.
If you’re looking to stick with the same car for a longer period (say if you’re looking beyond the three- to five-year mark, depending on the car), buying options begin to present better value because of the equity being gained in the vehicle.
The good news is with the average lease lasting two to four years, the agreements tend to last about as long as they represent good value.
Long-term considerations
While leasing may represent good value versus buying, there are some fundamental differences between leasing and purchase arrangements that you need to consider before taking the plunge:
Reasons you might want to lease
- You want the most affordable and flexible way of driving a new or used car every few years.
- You want the most ‘car for your money’.
- You don’t want to deal with the bad bits of buying, like depreciation.
- You want VAT benefits on a business vehicle.
Reasons you might not want to lease
- You want to own the car or have an ownership option.
- You want equity in the vehicle you’re driving.
- You don’t want to deal with terms and conditions like mileage limits and excess wear and tear.
- You want long-term value with the same car for a longer period.
If you want a deeper dive on buying vs leasing, take a look at our guide to PCP vs PCH which takes you through the two options in detail.
Tips for reducing lease costs
Negotiating the lease terms
All the things that go into a lease cost calculation, like depreciation, VAT and interest, can’t really be negotiated. One thing that potentially can be, though, is the actual cost of the vehicle, which, if you manage to sneak a cheeky reduction on, will have a positive knock-on to the other factors. There’s no harm in asking.
Choosing the right car
With leasing generally offering the most ‘bang for your buck’ in terms of the car you can get for your money, it can be tempting to get carried away. Just make sure you’re sticking to your budget.
If you’ve been looking at PCP or HP deals first, you might be pleasantly surprised by how far your budget can go. Take a look at our special offers to see if there’s anything in there that is both pocket- and driveway-friendly.
Understanding the lease agreement
As mentioned at the start of this guide, it’s essential you know what you’re getting into with your new lease. Being clued in on all the bits of your leasing agreement that can cost you money, like excess mileage and wear and tear, is a must. Our guide on how leasing works can shed further light on everything you need to know.
How much is it to lease a car with Hippo?
Why not find out today? You can have a look at our full car leasing range online right away.
If you’d rather speak to us, give us a call and speak to one of our experts who’ll be more than happy to help you find the right deal.
And don’t forget, you can use our free soft credit check to find out what your chances of approval look like without affecting your credit score*.
*This is a soft credit check that will not affect your credit score. If pre-approval is successful and you wish to proceed, you will be subject to a hard credit check which may affect your credit score. Pre-approvals are conditional and full approval may be denied subject to further checks.
