Can I use my pension to lease a car?

Date Posted 8th May 2017
Read Time 4 min read

You have reached your retirement or you’ve been retired for a while and you are thinking of getting a new car. Leasing seems like an attractive option because of the low monthly payments and the flexibility ensuring you aren’t tied down to a vehicle. The question is can you use your pension to lease a car?

Using your initial lump sum as a deposit?

As you are aware, when you took your pension, you received your pension commencement lump sum (PCLS),the tax-free cash lump sum that equals 25% of the value of your pension pot. If you so wish, you can use this a deposit on a car. The positive thing about car leasing is the higher the deposit you place, the lower your monthly payments will be throughout the duration of the agreement.

In fact, you have additional options open to you, depending on how much your lump sum is. If you go with a Personal Contract Hire agreement, you only pay a deposit as you simply hand the car back at the end of the agreement. However, with a Personal Contract Purchase agreement, you have more options at the end of your agreement. You can either hand the car back like with a PCH deal or you can pay off the Guaranteed Minimum Future Value also known as a balloon payment. This allows you to take full ownership of the car.

The GMFV is calculated at the beginning of the agreement as the amount your car will likely be worth after depreciation by the end of the agreement. If you have enough remaining in your initial lump sum, you can pay the balloon payment if you wish to keep the car.

Affording the monthly payments

The most important issue with regards to car leasing is being able to afford the monthly payments. As has already been mentioned, the larger the deposit you pay, the lower those payments will be. There are additional factors that lower those payments further.

The monthly payments are also determined by the length of the agreement and how many miles you want to drive a year. With regards to the length of the agreement, the longer you choose to lease a car for, the lower your payments will be. This is because you are stretching the value of the leasing agreement over a longer period of time. The only downside being that if you don’t like the car, you are driving it for a longer period.

Low annual mileage allowance

The other way is through your annual mileage allowance. At the beginning of car leasing agreements, you are asked to decide how much mileage you aim to drive each year of the agreement. The average mileage for people when they are working is around 10-12,000 miles a year. The average mileage overall in the UK falls to around 8,000 miles.

Car leasing payments are calculated based on the depreciation of the value of the car over the duration of the agreement. This means the more miles you drive, the more your car value will depreciate. So this means that the lower your mileage allowance is, the lower your monthly payments will also be.

Age limit?

Lenders are not allowed to discriminate against age. The main requirement is that you can easily afford the monthly payments fo the duration of the agreement. If you can prove that, then you should easily be accepted.

If you are retired and you are considering leasing a car, enquire with us and our staff will work hard to get you the right deal. You can easily use your pension to lease a car and we see no reason why you shouldn’t get the right car for you.  We have a grand selection of cars available for you to browse through for car leasing.

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