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It is the first question on every prospective car lease driver’s lips. In this guide we’ll be covering what factors affect a car leasing price. Understanding the full costs of leasing is vital for you to make an informed decision about which car you can afford to lease.
Several factors influence how much it costs to lease a car, not just the monthly payments. You’ll also need to consider the price of the initial payment, excess mileage charges, whether maintenance is included, insurance costs and end-of-lease charges including wear and tear. Understanding the existence of these charges and when they apply will not only help you accurately estimate the cost of leasing a car, it will help you drive the costs down by ensuring you use the cars within the parameters that keep certain excess charges from applying.
Every car lease will have an initial rental. It is simply the first payment you make on your lease agreement and will be part of your contractual lease payments.
This can be the same amount as your regular monthly payments or a larger payment depending on what the funder can offer and what you prefer.
The initial rental is calculated as a multiple of your monthly payments and will usually be one, three, six, nine or twelve times this monthly amount. For example, a 3 + 23 is a two-year lease with an initial payment that is equivalent to three of the subsequent monthly rental payments.
It’s calculated in this way as it is part of the total lease cost and is easier to break down the full lease cost into multiples of the same amount. Since it is part of the total cost of the lease, it is not a deposit, and not refundable.
Though it varies between funders, broadly speaking, monthly payments are dictated by the specific model chosen (including any additional features, trim packs and paint colour), lease length, expected resale value of vehicle at the end of the contract, fuel type, the mileage allowance, the amount paid for the initial rental and whether a maintenance package is included.
An excess mileage charge is a cost stipulated by the leasing provider charged for every mile that a car has been driven beyond the agreed limit at the end of the lease term.
It is charged because extra miles driven will have depreciated the vehicle beyond what was accounted for when the lease deal was costed and agreed.
Lease deals are built around different mileage thresholds, and a given vehicle may allow you to build your deal with annual mileage options between 5,000 or 6,000 and 30,000. The more miles you cover, the more expensive the lease will be.
How Much Does Excess Mileage Cost?
Excess mileage charges vary from company to company, but can be anywhere between 5p and 45p per mile and can be found in the terms and conditions of the lease deal. Let’s say it’s 20p per mile and you have a lease deal over three years with an agreed 6,000 miles per annum: 18,000 miles in total. If you hand the car back with 23,000 miles on the clock, that’s 5,000 excess miles. You’ll be charged 5,000 x 20p = £1000. That’s likely to be a lot more than if you had taken a higher monthly payment to cover more mileage which is why it’s a better idea to realistically estimate your annual mileage.
How Do You Estimate Mileage?
Estimating your mileage needn’t be complicated. If you already drive regularly, you can note the mileage on your vehicle odometer at monthly intervals and take an average from three months readings if you have time before acquiring a lease and want to be as accurate as possible. Then multiply that figure by 12 for your yearly mileage.
You can cross check this figure against a calculation of the trips you regularly cover over the course of a year. Work out your monthly trips to regular locations such as work and school runs plus to leisure activities and shopping trips. Google Maps is a good tool to work out the distances of these regular round trips.
Then think about any other trips you might do less regularly. Do you have friends or family that live much further out? Do you take your car on long day trips or weekends away? Roughly how many times a year? You should obtain a fairly accurate estimate, adjusting your real mileage figures by cross checking with the miles you’ve calculated that your activities take up across the year (since you may not have covered longer trips for example, during the 3 months you checked your mileage for).
Maintenance can be your responsibility or the lease company’s, depending on whether you’ve taken out a maintenance package.
A maintenance package can be taken out thorough your car lease with Xcite, covering your servicing, tyres, MOTs and other maintenance work needed for the duration of your lease. Some packages also include breakdown assistance.
Benefits of a maintenance package include:
For leased cars, fully comprehensive cover is a mandatory requirement and the policy must cover the vehicle from the day of delivery to the end of your contract, while third party insurance is the legal minimum requirement in the UK.
Insuring a lease car shouldn't be any more expensive than insuring a car you own fully comp though, since the cost of car insurance is based on a range of factors such as location, age and occupation - not the registered owner.
In the event of an accident, fully comprehensive insurance covers you for damage to the leased vehicle, someone else’s vehicle and anyone else involved in an accident (third party) regardless of who was at fault. It also covers damage to the leased vehicle as a result of fire or theft.
When considering whether to buy or lease a car, you’ll need to consider a couple of key factors:
Consider the pros and cons of car leasing by comparing the total cost of leasing a car versus buying one, including depreciation, interest and additional fees. Here are some of the factors you may want to consider:
Sometimes having financial flexibility is just as important, if not more important than the total cost of ownership. Lower monthly payments for new, reliable and safe vehicles are just two of the key benefits that leasing vehicles provides. Leasing allows you to divert important funds otherwise spent on purchasing a vehicle to other projects that may make better financial sense or simply serve your life better.
It is important to negotiate and understand the terms of your lease fully, to see where you may save money. Broadly speaking, most drivers can save money on their car lease by:
When it comes to choosing the right vehicle, you’ll want the most suitable vehicle to fit you budget and minimise your leasing costs. You’ll want to consider factors including:
Use a leasing provider who isn’t tied to one financial provider such as Xcite to compare the best deals brought together from across the market.
The Xcite team have vast experience in helping customers select the best vehicle to suit their needs and lifestyles and will be happy to help. Feel free to get in touch here or by phone on 0330 221 0000.
Try to negotiate any end of lease stipulations that are payable by the leaseholder. You won’t be able to get excess mileage charges removed from an agreement but you might be able to remove vehicle collection charges if they’ve been added, so be realistic about what you hope to achieve.
Areas to look out for and seek to negotiate wherever possible include:
Monthly Lease Payments – Negotiate the price down as much as possible, though be prepared to accept that there may be a longer term or higher initial payment in return, unless your negotiations are based on negotiating the actual selling price of the vehicle.
Mileage Limits - Negotiate mileage terms that align accurately with your usage to avoid substantial overage fees.
Early Termination Fees - Understand and negotiate the terms for early lease termination wherever possible to avoid committing to terms that may limit you.
Excess Wear and Tear - Understand what the lease defines as "normal" wear and tear versus "excess," and negotiate the terms if they seem too strict but be aware there is official guidance outlined by the BVRLA to cross reference with.
Maintenance Clauses - Ensure the lease includes comprehensive maintenance terms to reduce unexpected costs.
Gap Insurance – Check whether your lease includes gap insurance or consider obtaining it to cover the difference between the insurance payout and the lease amount if the vehicle is written off.
Disposition Fee – Find out if your lease includes a fee for returning the vehicle at the end of the lease term and if so, try to have this fee written out or negotiated down.
Managing your mileage effectively can prevent costly excess mileage fees which can hit you for thousands at the end of the lease, so beware!
Estimate your annual mileage as accurately as possible and choose a mileage allowance that fits your driving habits. You’re better off slightly overestimating your annual mileage than underestimating it, in terms of the difference you’ll be paying.
Proper maintenance can help avoid end-of-lease charges. So keep up with regular maintenance in accordance with the lease agreement and manufacturer’s guidelines to avoid penalties for neglect. Be aware that any modifications may violate the lease agreement and result in penalties. Include a maintenance plan to cover routine services and reduce potential unexpected expenses.
The average cost to lease a car ranges from £200 to £500 per month, depending on the make, model and terms of the lease.
Upfront initial rental payments typically range from £1,000 to £3,000, covering the initial down payment taxes, and fees.
There are no hidden fees when leasing with Xcite. All fees will be transparent within the terms and conditions of your agreement.
Exceeding your mileage limit results in additional charges, usually calculated per excess mile driven.
At the end of the lease, you can return the car, purchase it, or lease a new vehicle.
Car leasing can positively or negatively affect your credit score depending on whether you successfully keep up with the monthly payments and how you manage your credit in other areas.
Tax benefits for leasing a car can include potential deductions for business use, depending on your tax situation and local regulations.
Check out one of our helpful guides or our explaination of leasing to get all your questions answered.
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