Cars cost money.

Usually . . . a lot of money.

And not everyone has, well, that money . . .

Which is why car finance was invented (thanks, whoever you were).

It lets you pay for a car without, well, paying for it. At least not in one go.

Even better: car finance comes in various shapes and forms. We'll be talking you through each one and how they compare.

## How Does Car Finance Work?

Know that Audi you like which costs £28,000?

In a car finance agreement, you 'borrow' that money from a lender and pay it back in fixed monthly instalments. Usually over the course of about 1 to 4 years (you get to choose).

So in a way, you are paying for the car with car finance. You're just doing it over a long period of time.

## What are the Different Types of Car Finance?
![2 people negotiating a contract.](http://assets.leaseloco.com/blog/carfinancetypes.jpg)
<br>
Fantastic, so why do we need more than one form of car finance?

Well, it's usually to do with what happens to the car at the end of the agreement.

Some types of car finance give you the option to eventually own the car and hold onto it.

Some don't.

## PCP (Personal Contract Purchase)
![Balloon payment.](http://assets.leaseloco.com/blog/personal-contract-purchase.jpg)
The one we all know about.

So much so that we might say we want to PCP a car when we're really just talking about car finance in general, which isn't fair on the other types.

In a Personal Contract Purchase deal, you generally pay a deposit (say around 10% on average), followed by fixed monthly payments over a course of 1-5 years.

Rather than covering the total value of the car, these payments cover the amount of value that the car is expected to lose over the course of your contract. So at the start of your contract, the finance company will formulate a Guaranteed Minimum Future Value (GMFV) figure as the baseline for that. This arrangement often allows for lower monthly payments compared to Hire Purchase agreements (which actually cover the full value of the car, as we'll see in a bit).

Then comes the optional 'balloon payment', where at the end of the agreement you can choose to pay a lump sum and own the car forever. Or until you get sick of it or something . . .

Personal Contract Purchase isn't necessarily the 'best' of all car finance options, but you could say it's the most flexible. You can:

1. Hand the vehicle back and walk away into the sunset.

2. Trade it in for another PCP vehicle (you'll make some savings that way).

3. Make the final balloon payment, and Bob's your uncle – you now own the car outright.

Like with the other types of car finance, end of contract fees could apply, like if you've gone over the agreed mileage (in which case you'll be charged pence per mile), or if you've damaged the car beyond fair wear and tear guidelines. For example, by leaving a great big dent on the car (you aren't that clumsy, are you . . ?). 

## Hire Purchase
![Piles of coins.](http://assets.leaseloco.com/blog/hirepurchase.jpg)
The lesser-known sibling of PCP.

And no, not an ugly or a better-looking sibling, one that's pretty similar-looking. With some teenyyyy tiny differences. 

Like with PCP, you might make a deposit (maybe around 5-20% of the car's price) on a new or a used car, then followed by regular monthly payments. And same as with Personal Contract Purchase, the car is owned by the Hire Purchase company. You're just the car's registered keeper, a bit like a babysitter.

The difference is that it's Hire Purchase – in other words, you're expected to purchase the car at the end of the monthly payments. There's no final balloon payment. So once the monthly payments on the Hire Purchase agreement are done, you own the car and that's that.

Another key difference: with Hire Purchase, you're paying back the total value of the car, whereas with PCP you're only paying back the amount that the car is expected to depreciate in value. 

## Car Leasing/Personal Contract Hire (PCH)
![A toy car on some computer keys.](http://assets.leaseloco.com/blog/carleasing.jpg)
If PCP and Hire Purchase are siblings, then car leasing is their long-lost cousin.

Yes, you can make an optional deposit. Yes, you pay fixed monthly payments.

The difference is that with leasing, you can never own the car at the end (except for some [rare occasions](https://www.leaseloco.com/blog/can-i-buy-my-lease-car)). 

Yep, no balloon payment built into lease deals to let you hold onto the precious vehicle. Lease vehicles are designed to be entered and handed back. Similar to leasing a house, it's like renting a car for the long-term.

Oh, and [you normally can't lease a used car](https://www.leaseloco.com/blog/can-you-lease-a-used-car), although used lease cars are slowly making their way into the market. So look out for those in future.

Like with Hire Purchase, car lease payments cover the car's depreciation – in other words, the difference between what the car's worth when you first take it out and what it's expected to be worth in 1 or 2 years' time (or however long your contract is). One good thing about lease payments is that [they don't come with interest in the usual sense](https://www.leaseloco.com/blog/do-you-pay-interest-on-a-lease-car).

Similar to the other forms of car finance, you're responsible for paying for any damage that goes beyond [fair wear and tear](https://www.leaseloco.com/blog/leasing-fear-of-fair-wear-and-tear-6f9df364db0b) at the end of the agreement. What counts as 'excess damage' though is largely up to the leasing company, though there are some general fair wear and tear guidelines offered by the BVRLA.

## Personal Loan

A bit old-fashioned, but yes, taking out a bank loan is still a pretty popular way to finance a car.

Unlike with any of the above, you'll own the car right from the get-go, but the risks of not making the monthly payments are obviously greater.

We're not talking about debt collectors knocking on your door or something out The Godfather, but you can't exactly cancel a bank loan.

You CAN cancel a PCP or a lease agreement (with some caveats, mind).

And of course, the interest that's added on with a loan can be a bit steeper. The exact amount varies from lender to lender and usually depends on the duration of the loan, as well as your credit score and personal circumstances.

One advantage of a personal loan is that it's often 'unsecured', which means that the lender can't take your house off you or something if you fail to make the payments. That would be playing a very risky game.

You should only really go for a personal loan if you've got a killer credit score.

## What Do I Need to Get Car Finance?
![2 people negotiating a contract.](http://assets.leaseloco.com/blog/carfinancedocuments.jpg)
Nothing too fancy, just a few important documents.

As long as you're not James Bond on a forged passport, you'll be alright.

You need:

* Proof of address (e.g. council tax, utility bill, etc.)

* Valid form of ID (driving license, passport).

Certain picky lenders might also want to see proof of income. A few months' payslips should do the trick.

## Can I Get Car Finance With Bad Credit?

Yes. [You don't always need good credit in order to lease a car](https://www.leaseloco.com/blog/do-you-need-good-credit-to-lease-a-car).

Of course it helps and can lower the amount of interest you pay, but it's still perfectly possible to get a car lease with a CCJ/bad credit.

If you're credit score looks like a train wreck, the leasing company might require a bit more from you, like providing a guarantor.

## Can I Get Car Finance as a Young Driver?

Yep.

As long as you're over 18, you can sign your name on the dotted line of that car finance agreement. only need to be 18 years old to legally sign a car finance agreement.

Despite that, not every young driver is going to have a stable form of income or any credit history (which can be worse than having bad credit history). And not every young person is going to have a lump sum of money to use as a deposit (which OK, you don't always need, but still).

## Which Finance is Right for You?

It's a bit like a game of rock, paper, scissors. One form of finance can be good at delivering one thing, but not so much with others.

So, the type of finance that's right for you can depend on a number of things:

* How much can you afford to repay each month?

* Are you bothered about driving a new or a used car?

* How much are you willing to pay in interest?

* Do you care about owning the car in future?

* Are you willing to pay further costs down the line e.g. wear and tear, excess mileage

## Who is the Legal Owner of a Car on Finance?
![A statue symbolising the law.](http://assets.leaseloco.com/blog/legalowner.jpg)
The finance company, not you.

That is, at least until you settle the finance or make the final balloon payment (as in the case of PCP). 

Instead, you're what's called the '[registered keeper](https://www.leaseloco.com/guides/leasing-with-leaseloco/who-is-the-registered-keeper-of-a-leased-car)' of the financed car. You're the person who is permitted to use and 'keep' it on a daily basis.

## Can I End My Car Finance Agreement Early?

Finance companies don't like it, but yes, you usually can.

In a Hire Purchase agreement, you can terminate the contract early (Voluntary Termination) once you reach the halfway point of your agreement. Or if you're not halfway yet, you'd have to pay off the amount that it would take you to get there.

PCP is the same, except that it takes the balloon payment into account, so the financial halfway point might actually be reached two-thirds of the way through the agreement.

It's also [possible to end a car lease early](https://www.leaseloco.com/blog/ending-a-car-lease-early). Most companies will charge you an early termination fee equalling 50% of the remaining monthly payments, so the further you are into your agreement, the better.

## Car Finance Deals: Top Tips

There's always some golden nugget secrets to be had.

**Chase the deal, not the car:** You're better off knowing that you want a car in the SUV class than, say, one specific SUV. There's more chance of a great SUV deal popping up than a great Volkswagen Tiguan deal.

**Set price alerts:** Because the market's always fluctuating, that means prices are constantly moving up and down, which can be a good (and bad) thing for you. So . . . set a price alert on your favourite car or cars and instantly receive notifications about it dropping in price.

**Shop around:** Don't just compare different finance types on your dream car, make sure to compare deals from different funders as well. Look at the APR (Annual Percentage Rate) interest rates and the total cost of borrowing associated with each deal.

**Manage your credit score:** In the same way that your reputation goes before you in social life, your credit score goes before you in the finance world. It's the main thing lenders have to judge you on, so take care of it!

**Stay within budget:** Our final tip is to obviously not stretch your budget too far. Remember, on top of the monthly payments, you'll also have insurance and things to worry about. So don't get too ambitious.

## Summary

CCongratulations, you've passed Car Finance 101.

That's car finance explained in a nutshell. There's car finance options out there to fit most people's finances, though PCP, Hire Purchase and leasing are the big hitters in terms of car finance options and the ones worth knowing about.

## FAQs

### How does finance work on a car?

Finance on a car works when a lender 'loans' you the money for a car (usually with interest added on top), which you then pay back over a fixed period of time, with or without a deposit.

### What are the different types of car finance?

The main types of car finance deal are **Hire Purchase** (HP), **Personal Contract Purchase** (PCP) and **Car Leasing** (Personal Contract Hire), though there are several more niche options out there.

### Who pays for repairs on finance cars?

Unless the damage is caused by another driver or it's a mechanical fault that's covered by the warranty, it's you who is responsible for any cost of repairs on the car.

Understanding car finance can be confusing. This guide breaks down the different types of car finance options available to help you make an informed decision.

Car Finance Explained | LeaseLoco

Car Finance Explained

When it comes to leasing, mileage matters.

Not only does it affect your maintenance costs and insurance premiums (like with any other form of car plan), but also the cost of your monthly lease payments.

That's why it's a good idea to know exactly how many miles the average driver covers per year, but more importantly, how many miles you yourself expect to cover. Whether it's figuring out how many miles to declare on your car insurance or how many miles to add to a car or van lease contract, mileage is very important.

In this post, we'll be giving you an in-depth look at how mileage affects leasing, telling you about the best way to check how many miles you're covering each year, and whether you're going to rack up more miles in a petrol versus a diesel car.

Vamos and let's get to it!

## Average Miles Driven Per Year

According to statistics, in 2020 the average annual car mileage on Britain's roads was just 6,800 miles. That figure is obviously going to be massively influenced by the pandemic and the rise in popularity of working from home, but even in 2019, the average was only a slightly higher figure of 7,400 miles (compared to 9,200 miles way back in 2002).

A deeper look into those same statistics revealed that this low number mainly reflects privately owned vehicles, with company cars (like those used by carers, delivery drivers etc) covering a much higher average mileage figure of 13,200 in 2020.

## How Does Annual Mileage Affect Leasing?

Pretty drastically, to be honest.

Leasing is great and all (just take a look at the [reasons why](https://www.leaseloco.com/why-lease)), but it does come with stringent terms, so it's important to get those parts right.

When deciding upon a lease agreement, you'll have to come to a decision on an annual mileage limit. This is especially important, because what you pay for your monthly payments is determined by the annual mileage as set out in the agreement.

If the agreed upon mileage limit is exceeded, you will be charged excess fees as a consequence at the end of the contract. However, you do have the freedom to [amend the mileage limit at any point during the agreement](https://www.leaseloco.com/faqs/can-you-amend-the-mileage).

For more info, why not check out our handy [mileage guide?](https://www.leaseloco.com/guides/contracts-and-finance/everything-you-need-to-know-about-annual-mileage)

## How Does Annual Mileage Affect Insurance Rates?

Not only that, but there's also the issue of insurance as well. You need insurance whether you lease, own, or take out a PCP deal on a car or a van. At the end of the day, it's an unavoidable part of being on the road.

You can help lower your insurance premiums by driving fewer miles over the course of a year. That's because your mileage directly affects your insurance costs. It's a simple calculation, really: the more you drive, the more likely you are to be involved in an accident and the more of a risk that car insurance companies are going to deem you, which results in higher premiums.

It might not seem fair or reflective of your driving ability (after all, you could be as skilled a driver as Colin McRae and it wouldn't make a slightest difference to what you pay), and obviously other factors might come into play such as your age, how long you've been driving for, and so forth. But that's how the world works.

On that note, you can't get around the system by lying about your expected mileage. Not declaring the correct number of miles when applying for car insurance could invalidate your policy. Something you definitely wouldn't want.

Bottom line: don't do it, amigos.

## Calculating Your Own Annual Car Mileage

For all of the above reasons, it's a good idea to track your own average annual mileage.

And as luck would have it, we're going to tell you the best way in which to do just that:

1. Record the number of miles you cover over the course of a week (it could also be over the course of a day, but that's arguably too small a sample size, and weekly is probably better to get a true overall picture)

2. Next step is to multiply that figure by 52 (or 365 if you've chosen to calculate by days)

3. Add a little more miles on top so as to cover any holidays and/or unexpected trips

Another thing which you can do is look up your car's MOT certificates, as these record your annual mileage.

Simples!

## Fun Facts: Mileage by Demographics

On a less serious note, thanks to actuaries and their fantastic number-crunching skills, we do have some interesting facts relating to mileage to share with you. These relate to driving behaviour by gender and age group. Get ready to be entertained . . .

Men drive 6,000 more miles per year than women

Average annual car mileage for women over the age of 65 was less than 5,000 per annum, making them the country's least frequent drivers

Average annual car mileage for young drivers aged 16 to 19 and elderly drivers aged over 65 was 7,600 miles

Average annual car mileage for working-aged men was about 7,500 miles more than working-aged women per annum

## Petrol vs Diesel: Which is Better for Long/Short Journeys 

When it comes to petrol and diesel cars, the same statistics that we mentioned earlier inform us that diesel cars travelled 9,400 yearly miles on average, whilst petrol cars travelled 6,300 yearly miles on average.

Being more reliable and durable, diesel engines are better suited for long-distance drivers and 'motorway miles'. Petrol engines are better if you're going to be taking lots of short journeys.

That's because diesel engines aren't optimised for shorter journeys. Most diesel cars are fitted with what's called a diesel particulate filter. In order for this filter not to clog up, the engine has to reach the optimum temperature by travelling at a continual high speed every so often.

That being said, a daily drive to the local shops in a diesel car isn't out of the question. It's perfectly fine so long as you're putting in those regular motorway drives every so often.

## What about Electric?

Electric cars are also a good option if you're a high-mileage driver. There are fewer moving parts in an electric car, which means less that can go wrong, and rapid chargers at service stations allow you to top up to 80% range in the time that it takes to drink a coffee. A [Tesla Model 3](https://www.leaseloco.com/car-leasing/tesla/model-3) or a [Model S](https://www.leaseloco.com/car-leasing/tesla/model-s) would be an ideal option here.

## Summary

So, you now know that the average mileage is 6,800 per year, but that's still just an average and may or may not reflect your driving needs.

A bit of forward planning is all it takes. Just work out how many miles you need to drive each year (commutes, a weekly shop to Lidl, etc.), factor in a bit more for holidays and spontaneous trips, then take out a lease deal with that mileage figure in mind.

Don't take out a lease deal and THEN realise that you're actually covering more or fewer miles than you thought you would, although you can still amend the mileage limit at any point during the agreement. (Don't say leasing isn't fair to you!)

And don't forget, your mileage will affect your warranty and insurance!

## FAQs

### What is a car's average annual mileage?

In the UK, the national average mileage was 6,800 miles (as of 2020).

### What is good mileage for a year?

Depends on how you define 'good', but anything lower than the average annual mileage is generally a good bet (as of 2020, that average mileage figure was 6,800 miles).

### How many miles does a car last on average?

Assuming that it is properly maintained, then the average car has a lifespan of around 200,000 miles.

### How many mileage is too much for a car?

As stated above, anything over 200,000 miles could be considered too much.

Learn about the impact of annual mileage on leasing and car insurance, including how to calculate your own annual car mileage, how to lower insurance premiums, and fun facts about mileage

The Average Mileage & How Mileage Impacts Leasing | LeaseLoco

The Average Mileage & How Mileage Impacts Leasing

Putting money towards a car and a house are probably the two biggest financial commitments you'll make over the course of a lifetime. A mortgage is usually the bigger commitment of the two, so if you're thinking about getting one, you may be wondering whether a PCP or car lease deal could hinder you in the process.

Well, we can tell you definitively that it might. Alternatively, if you play your cards right, it could have no impact whatsoever. For information about why this may or may not be the case, and about how you can preserve your credit score, please read on . . .<br>
<br>
# FAQs

## Will getting a car loan affect my mortgage?

Certainly will. Since a car loan is technically a form of debt, mortgage lenders will take it into account when deciding how much money they can offer you. The more you still have to pay back, the less they'll offer you, and you won't have access to the best interest rates. Too much debt and you could be refused a mortgage altogether. However, having a history of paying back loans is something lenders will look favourably upon. 

## How does car finance affect your credit score?

As with other bills like credit card payments, a car finance deal can negatively affect your credit score if you default on it or fail to keep up with the monthly payments. On the flipside, your credit score could also improve if you consistently pay on time.

## How is a mortgage application assessed?

Lenders assess your current and future finances, your employment status and any debts you owe now and in the near future, including car PCP and lease payments. Even if you have no outstanding debts, they will still take into account your credit history and reliability when it comes to repayments.

## Can I afford a mortgage if I have car finance?

It all depends on your total monthly income and outgoings and whether you can afford both the mortgage and car payments. Whilst getting approved for an expensive deal on your dream car might seem enticing, it could then mean that you risk getting turned down for a mortgage on your dream home, and vice versa.

## How do I improve my chances of getting improved for a mortgage?

Firstly, build up your credit score before applying for a deal. You'll then be seen as more financially responsible. It's also generally a good idea to take out car finance after you've gotten a mortgage, so as not to risk it affecting your mortgage application. Or, if you're already locked into a car deal, consider whether you can afford to settle the car finance early.

## How can I check if I'm eligible for a loan?

Agencies like Equifax and Experian provide a free credit score review or 'soft search' on your credit profile. That's opposed to a 'hard search', which will leave a footprint on your file that could affect future applications. Too many hard searches in a short space of time makes you appear more unreliable to lenders.

If you're thinking about getting one, you may be wondering whether a PCP or car lease deal could hinder you in the process.

Putting money towards a car and a house are probably the two biggest financial commitments you'll make over the course of a lifetime.

Will getting a car loan affect my mortgage? | Leaseloco

Does Car Leasing and Finance Affect Your Mortgage

A car lease agreement requires you to put an initial payment or 'initial rental' down on the vehicle that you're going to lease. As the name implies, an initial payment is a payment made at the start of your lease agreement. It's a one-off payment that can either raise or lower the monthly payments you make for your car, but without taking anything away from the overall total cost.

Below, we'll explain exactly how it works so that no aspects of it remain a mystery.

## FAQs

How are initial payments calculated?

Along with other leasing options like contract length and annual mileage, you can change the initial payment amount to suit your needs. It can be anywhere from 3 to 12 times the monthly payment amount. Whatever amount you go for, it's taken off the total cost of the lease deal, so the higher your initial payment, the less you'll be paying on a monthly basis.

## Is it better to make a larger initial payment?

It doesn't make a difference in the grand scheme of things. It just means that you'll have lower monthly payments throughout the remainder of the deal, so it all depends on whether you'd rather pay more or less money right at the start. Whatever you choose to do, the total cost of the lease deal remains the same.

## Is the initial deposit on a lease car refundable?

Despite often being called a deposit, an initial rental payment isn't quite the same thing. Because it goes towards paying off a portion of the total amount which is due on the car over the course of your lease agreement, you won't get your initial payment back at the end of the contract. That's different from a standard deposit, which is of course refundable.

## Is there such a thing as ‘no deposit' leasing?

There is, but it's not quite how it sounds. In leasing terms, '[no deposit](https://www.leaseloco.com/car-leasing/no-deposit)' really means a payment that is equivalent to one month's payment of the lease price. If a car costs £100 to lease per month, then the no deposit fee will also be £100. So if you are looking to lease with no deposit, just set the "upfront" initial payment to one month.

## How do I pay for my initial rental payment?

To help comply with anti-fraud regulations, bank transfers and direct debits are usually preferred. Credit and debit card payments can work too, but payment via this method should be made in advance. You will never be able to make the initial rental payment using hard cash.

## What happens to your initial down payment on a lease?

As stated before, it goes towards paying for the overall cost attached to the lease deal. The payment will be made directly to the finance company that's connected with your lease agreement, after which point you'll be given a delivery date. Once you've signed the paperwork, there's no going back and the amount becomes non-refundable.

A car lease agreement requires you to put an initial payment or...

As the name implies, an initial payment is a payment made at the start of your lease agreement.

What Does Initial Rental

What Does Initial Rental Payment Mean?

Like with PCP finance, a car lease deal is essentially a loan whereby you borrow the total cost of the rental payments, paying them back in regular monthly instalments. Because of that, lenders are going to be very interested in your finances and financial history in order to assess your likelihood of meeting the monthly payments for a vehicle, whether you intend to use it for personal or business use.

That assessment will take place via a credit check, as required by Financial Conduct Authority (FCA) regulations. A creditor is not legally obliged to tell you that such a check is taking place, though you may still receive a quick heads-up.

So if you want to learn how to play your credit score safe and secure a lease deal on a new vehicle, please do read on!

## Do you get credit checked for car leasing?
Yes, a credit check is necessary for a car lease deal. This isn't deemed a 'hard' check, so it won't affect your credit score.

## Do you need a good credit score for a car lease?
Although it is possible to lease a car with a bad credit score, you should still try to aim for a good credit score of between 661 to 780, giving you access to better payment rates.

## Does leasing a car affect credit score?
As with credit card payments and other bills, car leasing does affect your credit score. Your credit score can be negatively affected if you fail to keep up with the monthly repayments, but it can also improve if you consistently pay on time.

## Why is a credit check carried out when leasing a car?
A credit check needs to be carried out when leasing a car so that the finance house can determine if you will be able to afford the monthly payments. The higher your credit score is, the better.

## Can I lease a car if I have a bad credit score?
It is still possible to lease a car with a bad credit score. Some lending companies and credit unions are tailored specifically to customers with a bad credit score, but your lease options will be limited and you may end up with bigger monthly payments.

## Using a guarantor on a car lease
Using a guarantor on a car lease deal means that if you aren't able to make a payment, your guarantor will be able to pay on your behalf. In order to qualify as a guarantor, they should usually be a family relative, be aged over 21, and have a good credit rating.

Got questions about car leasing and your credit score? Well, look no further.

Does Leasing a Car Affect Your Credit Score? -LeaseLoco

Does Leasing a Car Affect Your Credit Score?

* Car leasing and PCP explained
* Leasing vs PCP: pros and cons of each
* Deciding which suits your needs

Stuck on whether to get your new car on a lease or a PCP deal, or simply unsure what each of those entails?

We don't blame you.

There's lots of things to consider when deciding on the type of deal that best suits your needs, and although there's some crossover when it comes to the terms of a car leasing and a car finance PCP contract, there's also some key differences as well which are bound to affect what you pay and the kind of car available to you. We're here to give you the rundown on what those differences are.

So sit back, relax, and just let us do the driving.

## What is PCP?

Personal Contract Purchase (PCP) is the most common means of getting behind the wheel, with the majority of Britain's motorists choosing to obtain finance this way.

It works like this:

Find the car that takes your fancy, then agree on the deposit amount, contract length and expected annual mileage, which can all make your monthly payments lower or higher

Pick up the keys and get driving, whilst keeping up with your fixed monthly payments, which are protected from market changes by the car's Guaranteed Minimum Future Value (GMFV)

Finally, you either hand your car back at the end of the finance agreement without charge, or swap it for a new model and use any equity towards a deposit on your next car, or you can buy it outright by paying a final lump sum or 'balloon payment'

The cash amount involved in this optional final payment at the end of the PCP agreement is determined by the finance provider at the start of a deal, who will then calculate the GMFV of your car at the end of the contract.

The exact cost of your deal's monthly payments is calculated by the difference between the car’s retail price when you first receive it and its value at the end of the agreement. Usually, this will amount to a third or one half of the vehicle's initial price. Basically, you'll be borrowing the full value of the car and paying interest on the remaining debt.

## What Is Car Leasing?

Unlike PCP, car leasing, otherwise known as Personal Contract Hire (PCH), is more of an unknown but it is steadily growing in popularity and is basically a long-term rental contract.

It works like this:

1. Find the new lease car that takes your fancy, then agree on the contract length, initial payment and other terms with the provider
2. Pick up the keys and get driving, whilst keeping up with your regular monthly payments
3. At the end of your lease contract, simply hand your lease car back to the leasing company (subject to a final fair wear and tear inspection for excess damage, as per the [BVRLA fair wear and tear guidelines](https://www.bvrla.co.uk/guidance/fair-wear-tear.html)), and either walk away or take out another lease deal on your next car

Like with PCP, if you exceed the agreed annual mileage allowance limits, you'll have extra fees to pay. It is also possible to extend your lease agreement for a few months, but again, usually at the cost of a fee.

If you end up becoming attached to your lease car (or it to you!), then there's no harm in asking if you can buy it at the end of your lease agreement, though there's every reason for that request to be refused as it's not part of the standard agreed-upon leasing process.

## What Is the Difference Between PCP and Lease Deals?

As you've likely gathered, the biggest difference between leasing and PCP deals is the final lump sum or balloon payment which lets you buy the vehicle outright at the end of a PCP deal. You can also be a party pooper and just walk away, which is perfectly okay too.

On the flipside of that, leasing lets you take out a deal on a car for shorter periods of time, typically lasting anywhere from 2 to 4 years, but it can be lower if desired. Leasing also offers relatively low monthly payments in comparison with PCP, which can often be the deciding factor for some people. Allowing you to drive a nicer or newer car than you could afford on PCP.

Furthermore, unlike with car leasing, PCP works like a loan so you have to consider APR interest rates with PCP, which is usually between 4-8%, but sometimes as high as 20%. With leasing, this is all covered in the monthly payments.

## Which is Cheaper: Lease or PCP?

A PCP contract usually costs more than an equivalent leasing contract. That's because of the extra flexibility that comes with a PCP deal, like being able to own the vehicle at the end of the contract.

Whilst a used car on PCP can sometimes work out cheaper than a new lease car, getting a new car through leasing is usually going to be cheaper than getting a new car on PCP.

If you’re looking for a [luxury vehicle](https://www.leaseloco.com/car-leasing/prestige) like an [Alfa Romeo](https://www.leaseloco.com/car-leasing/alfa-romeo), a [Mercedes-Benz](https://www.leaseloco.com/car-leasing/mercedes-benz) or a [BMW](https://www.leaseloco.com/car-leasing/bmw), it can often be cheaper to lease than buy because these vehicles hold their value and depreciate less, thereby costing less to lease per month. So leasing can grant you more luxury and a shinier badge, whereas a heftier price tag will be attached to the same vehicles on PCP deals.

If in doubt, seek alternative quotations by getting a PCP quote on your desired car, and then a leasing quote on the same car . . . and compare.

## Is There a Difference When It Comes to Electric Cars?

Yes. Basically, if you want an electric car, you're better off leasing it.

That's because electric technology is moving fast, so if you end up owning one through paying the lump sum on a PCP deal that's lasted three or four years, you could be left with an electric car that's not worth much. Which is why a lot of [Tesla's are leased](https://www.leaseloco.com/car-leasing/tesla) rather than bought outright or through PCP.

## What if I Want To Terminate My Contract Early?

Like a winding road, life can throw up a lot of unexpected twists and turns. It's possible that your work or life situation might change, meaning that you will no longer be able to afford the fixed monthly PCP or car lease payments.

It happens. Even to the best of us.

Fortunately, PCP deals are fairly compassionate when it comes to being able to end your contract early, letting you do so as long as you’ve paid 50% of the deal's total finance back to the car finance provider. It's important to note though that this doesn't necessarily equate to being halfway through your contract in terms of years or months, as 50% of your total finance also includes any admin fees and the value of the balloon payment.

Your finance provider could make the cost manageable by letting you ‘trade down’, which is when you trade your car for a cheaper model, thereby lowering the cost. What will happen is that the outstanding finance will then be carried over to your new vehicle's deal.

You can also end a car lease deal early but the penalties for doing so will be harsher, as lease deals are by their nature more stringent and uncompromising, not least with their early termination clause. To put it bluntly, you'll be faced with hefty charges – usually 50% of any remaining finance, plus an early termination fee.

Ouch!

## Lease or PCP: Pros and Cons

### Pros of Leasing

* Low monthly payments compared with PCP
* Being able to drive a higher-end luxury and higher spec car for a more affordable price
* Shorter-term contracts

### Cons of Leasing

* Harsher and more stringent contract terms
* Initial payment, whereas PCP often requires no deposit
* Only being able to lease used cars
* Leasing is more difficult if you have a poor credit score

### Pros of PCP

* More flexibility for ending contract early
* Option to buy or trade-in car at end of contract
* Offers finance on both new and used cars
* Takes poor credit scores into consideration

### Cons of PCP

* Higher monthly payments
* Having to pay interest

## How Do I Know Which One is Right for Me?

Toss a coin.

Just joking . . .

Truth is, there's no 'one size fits all' answer when it comes to that million dollar question. But in general, if you want a new or used car with the potential of owning the car at the end of the agreement, then obviously your best bet is PCP. On the other hand, car leasing is the way to go if you plan on switching cars every couple of years (2-4), such as for business or work needs, or if you just want lower monthly payments.

If you think that you might want to own a car at the end of an agreement, again, probably opt for PCP, but it's still a good idea to weigh up the benefits and potential lower monthly costs that you'd get when taking out the exact same car on a lease agreement.

It's worth noting that a lot of people actually take out a PCP deal and end up treating it like a car leasing deal because they have no real intention of putting down that optional final payment and owning the car at the end of the contract, whereas they could have gotten cheaper monthly payments if they'd opted for a car lease on the same vehicle.

Also, the crown jewel of car ownership might not be for everyone. As alluring as it may seem, car ownership means being responsible for maintenance and repairs which only increase the older your car gets, particularly if it's already racked up a ton of miles on a PCP deal. So think about how important car ownership means to you before handing over that lump sum for the optional final payment. With leasing, you have the freedom of mind not to have to worry about what happens to the car once you hand it back.

Of course, there are other ways to pay for a car besides PCP and car leasing, such as through a bank loan, hire purchase, or simply buying a car outright (probably not a realistic option unless you have a mountain of spare cash lying around).

**Read more:**

* [How to calculate your outstanding PCP balance](https://www.leaseloco.com/blog/how-to-calculate-your-outstanding-pcp-balance-d371bc459736)
* [Leasing fair wear and tear guidelines](https://www.leaseloco.com/blog/leasing-fear-of-fair-wear-and-tear-6f9df364db0b)
* [Can you lease a car with bad credit?](https://www.leaseloco.com/guides/contracts-and-finance/can-you-lease-a-car-with-bad-credit)

## Leasing With LeaseLoco

As an authorised and regulated leasing company, we offer you the best car leasing offers to suit your needs, thankfully with road tax and the full manufacturer's warranty included (and, more often than not, full breakdown cover).

Best of all, our very own Loco Score ranks the latest car leasing deals on brand new cars from best to worst so that you don't have to. We compare the best prices to make sure you get the most for your money and the best monthly payments.

With that in mind, why not check out our [car leasing offers](https://www.leaseloco.com/car-leasing/search) and pick up your favourite deal on your brand new car!

# FAQs

## Are PCP contracts worth it?

Often the cheapest way to get a car is using PCP finance on a used car. When it comes to new cars though, leasing (personal contract hire) is nearly always the cheapest option, followed by PCP then HP. What's best for you depends on a few factors.

## Which is better value PCP or PCH?

If you plan on paying the optional final payment on a PCP deal and owning the car for 5+ years, paying for the maintenance costs and keeping the car long term, then PCP finance is better. If you plan on changing car every 2-4 years or don't plan on paying a large final payment, then leasing is better. PCP often requires a large deposit whereas leasing doesn't require a large initial rental payment.

## What is the difference between personal contract purchase and hire purchase? (PCP Vs HP)

The difference between PCP and HP is that HP is more expensive, as you are paying the full amount of the car rather than the amount the finance lender predicts the car will lose over the term length. PCP and HP both often require large upfront payments.

Hire purchase (HP) used to be more popular than it is now, with less and less people now opting for a HP deal. Unlike with PCP finance, you don't pay off the amount that the finance lender predicts that the car will lose in value over the contract length. Instead, you pay off the full value of the car. Making monthly payments more expensive.

## Who owns the car on a PCP deal?

The finance company owns the car, even if your V5C document says that you are the registered keeper. Only once you have paid the final payment will you own the car.

A Guide to the Differences between Leasing and PCP.

there's also some key differences as well which are bound to affect what you pay and the kind of car available to you. We're here to give you the rundown on what those differences are.

Car Lease or PCP: Which Is Better? - LeaseLoco

Car Leasing or PCP: Which Is Better?

A GAP insurance policy will cover the difference between your insurance payment and the market value of your car, should the car be stolen or written off. This means that you won’t need to pay for any costs if your insurance’s payout doesn’t cover the entire finance, which with leasing would be the remaining finance owed on the lease. You shouldn't be required to get GAP insurance by the funder through our leasing partners, however, for your own peace of mind, it may be something you wish to consider.

## How Does GAP Insurance Work?
To explain how GAP insurance works, simply put, if your leased vehicle has been written off, stolen or been in an accident, the GAP insurance pays the shortfall between the vehicle’s market value and the remaining amount of the total cost of the lease left to pay. The market value is the expected price if you were to sell your vehicle at that time. This is optional and your leasing provider won’t require you to take this out, and if you decide it is something you would like then you will need to organise this yourself.

If you are needing to claim your GAP insurance, then you will need to wait for your car insurance provider to offer their settlement first. You will then need to speak directly with your GAP insurance provider before accepting any insurance settlement. It’s best to check any details from the GAP insurance provider such as any excess or time limits for making a claim.

## Benefits Of GAP Insurance
There are many benefits to taking out GAP insurance when leasing. Here are some of the main perks:

### Financial Protection
When asking yourself ‘Do I need GAP insurance?’, the biggest benefit and motivator to do so would be the financial protection you have in the event that your car is stolen, in an accident or written off. This will give you peace of mind that if any unfortunate circumstance arises, such as those mentioned, you won’t be lumped with a big payment.

### Payment of the ‘Gap’ 
GAP insurance will pay the shortfall if your insurance does not cover the entire finance that will allow you to settle your lease agreement if your car is stolen or written off.

### Useful for Car Leasing
If your lease car is written off or stolen, the insurance company will only pay out on its market value, however, this is a lot less than what the car is worth to your leasing provider. You will still need to pay the leasing company the contract agreement, and the insurance company won’t cover all of this. So, if you opt for GAP insurance with your car lease agreement, you will be covered to pay the car back fully without paying the big settlement fee.


## Types Of GAP Insurance
There are a few types of GAP insurance, and which type you get will depend on a few factors including when and how you bought the car, where you have bought it and if it is used or new.

### Back to Invoice GAP Insurance
This GAP insurance policy will pay the difference between the original purchasing price and the payout that your insurance provider agrees, and potentially any additional finance. This GAP insurance is for cars that have been bought from a dealer in the last six months.

### Agreed Value GAP Insurance
This GAP insurance is usually offered for cars that were bought privately or from a dealer after the back to invoice point of six months, usually aimed at used cars. This will cover the difference between the market value of the vehicle when it was written off and the value of the vehicle when the policy started.

### Vehicle Replacement Plus GAP Insurance
This GAP insurance cover aims to protect you if the cost of any replacement cars increase since the day you took delivery. This GAP insurance will give you a payout that matches the difference between the cost to replace the vehicle itself and the market value paid by the insurer.

### Contract Hire GAP Insurance
This is the GAP insurance for lease cars that you don’t own yourself, so this will be the type used for any lease deals through LeaseLoco. In this instance, rather than covering the car value, it is the outstanding monthly payments and shortfall from the insurance provider’s payout in the market value. In some instances, this will protect the upfront payment you may pay at the beginning of the lease deal.

## How Is GAP Insurance Calculated?
This may be best explained through an example. 

You take out a lease for a car for 4 years, which is valued at £25,000. Let’s say that after 3 years, your lease car is valued at £12,000 due to the depreciation.
Your lease was £300 a month, and you still have £3,600 left to pay for the lease.

The insurance company will pay £12,000 for the loss of the vehicle.

The funder for your lease agreement will give you a figure of £15,600 to clear the finance owed for the car’s value at the time plus the outstanding payments.

This means that there is a £3,600 GAP, which is the amount that your GAP insurance will cover. 

## What Happens If You Don't Have GAP Insurance?
Referring to the above example, you will need to pay the ‘GAP’ amount if your car is written off or stolen.

## How Much Does GAP Insurance Cost?
The cost of GAP insurance will depend on the car that you are getting and what its value is and how long your lease term is. GAP insurance policies will usually range from £100 - £300 for multi-year coverage. Some tools will give you a quote for the cost of your GAP insurance, and often these tools can also display what the potential shortfall would be if you don’t have the GAP insurance.

## GAP Insurance Eligibility
There are a few vehicle requirements worth considering in order to be able to claim GAP insurance.

The standard vehicle eligibility for GAP insurance:

* Vehicles up to £125,000 invoice price
* Vehicles up to 3.5 tonnes
* Vehicles 6 years old or less

There are also a number of exclusions including:

* Taxi vehicles, driving school vehicles, buses
* Vehicles used for speed testing or racing
* Left-hand drive vehicles 
* Vehicles that don’t meet UK or EC approval 
* A vehicle that was written off when the driver was under the influence or either drugs or alcohol
* Vehicles that are not insured by a comprehensive UK insurance company 
* Vehicles that were stolen by someone who had access to keys
* Vehicles that were changed in any way from the manufacturer’s spec

If you’ve read all about GAP insurance with car leasing, and are now looking for your perfect car lease deal, take a look at the millions of car lease deals available at [LeaseLoco](https://www.leaseloco.com/) to find the perfect deal for you. Our goal is to make it super quick and easy for you to secure a great lease deal with only a few clicks by helping you to make a free enquiry with our leasing partners – whether you are looking for a brand new [car](/car-leasing/search) or [van](/van-leasing/search)!

Considering gap insurance for your leased vehicle but not sure what it is or if you need it? Here's everything you need to know.

What Is Gap Insurance And Do I Need It?

Mileage is an important part of car leasing, especially when it comes to choosing the right deal, as it’s the easiest way to measure the wear and tear of a car or van. You will need to select your annual mileage when choosing a lease deal, so it’s important to have a good think about how many miles you will be doing. Once your lease deal comes to an end and you hand back your car, if you have exceeded your mileage limit then you will need to pay a fee to cover this. 
This guide covers everything you will need to know about annual mileage including what will happen if your mileage is not what you expected and if you need to adjust this during your lease. 

## How Does Mileage On A Car Lease Work? 
With car and van leasing, you will need to select your annual mileage. The differences in mileage will mean a difference in price, so you will want to have a think about how many miles you will actually be doing every year and select the deal that suits you best. This often worries people who have concerns about predicting their annual mileage and getting charged if they go over this. But this isn’t as complicated or costly as it may seem – in fact our leasing partners will go out of their way to help you with selecting and adjusting your mileage.

The reason that mileage is so important is because it influences the depreciation of a vehicle. Car dealers use mileage as a way to measure a vehicle’s age, as opposed to how old the car is, as it’s a great metric to determine the value of the vehicle. Once the lease deal is over, the car dealers will go on to sell the car or van based on the mileage you have done. So, if you have gone over your mileage limit once the lease term is over, you will need to pay an excess mileage charge to cover the difference of the car’s real value against what it was expected to be when returned with your selected mileage.

Due to the average mileage per year in the UK, lease deals usually start from 5k mileage a year to 35k mileage a year. Although, if you are counting on doing more than 35k mileage, this may be something our leasing partners can give you a quote for individually.

## How Do You Calculate Mileage On A Car Lease? 
You will be the person to select what you think your average miles per year are and select a lease deal that best reflects this. If you have been driving for several years already and believe that your driving habits are unlikely to change, you can check any MOT certificates you may have to give you an idea of the mileage you are doing. Or another way is to consider and calculate how many miles you do in a month on average and multiply this by 12. It’s important to consider this as an average over the year as you may end up doing more miles in certain months and less in others. For example, if you take a holiday in the summer! 
If you’re a new driver and haven’t had a car before, you may want to work out what you will be using the car for exactly and how many miles it takes to get to these places – simply through an app like Google Maps! Consider all the trips you will be making in a month, and potentially add on around 5% for any unplanned extras. Then multiply this by 12 months to get your average mileage per year.

## What Is The Average Mileage On A Car Lease? 
The most recent government report by the Department for Transport states that the average miles per year in the UK was 7,400 miles. The report also shared that on a daily basis in the UK, people drive an average of 20 miles a day and 142 miles in a week. While this may be perfect for many, it may not be enough for some and it may be too many for others, which is why it is important to think about how many miles you do before securing a lease deal. 

Something else to think about is that if you have a 3-year lease with 10k mileage per annum, the total mileage of 30k mileage is spread across the three years. So, if you do less than 10k in one year, and more in the other, that is perfectly acceptable so long as the total is not over your agreed mileage for the term. 

## Can I Adjust My Mileage If Needs Be? 
You certainly can! And it’s not as scary as people may think. If you’re mid-contract it is straightforward to contact your leasing provider to renegotiate your annual mileage limit if you believe you may go over it. This also works on the other hand if you have overestimated your annual mileage for your lease deal and are looking to reduce your mileage and monthly payments. Our leasing partners understand that when circumstances change, especially in the uncertain current climate, you may need flexibility either way.

What many people have done in the past year due to COVID and multiple lockdowns, is to take a lease deal with a lower mileage than they would normally use to avoid paying for mileage they are not doing, and then increasing this as things return to normal. Either way, our leasing partners are more than happy to adjust your mileage throughout your lease deal as hassle-free as possible.

Feel free to read about how to win on your contract mileage for more information.

## How Much Will It Cost If I Go Over My Mileage Allowance?
The cost of excess mileage will vary, however, these mileage penalties on cars often range from 7p – 11p. Of course, there is the potential that they can be more than this so always check your contract with our leasing partners! One way to think about excess mileage charges is that if you go over your mileage allowance by 1,000 miles, you would be charged around £70 – £110. Therefore, you may want to consider the excess mileage cost as it may even be cheaper to opt for the lower mileage option and pay the excess mileage fees than to have bought the mileage upfront in your lease contract. 

Now that you have read all about annual mileage with car leasing, you can search and compare the millions of car lease deals available at LeaseLoco to find the perfect deal for you. Once you spot a deal you like, as we are a price comparison site, we make it super easy to contact our leasing partners from the deal page by clicking ‘call’ or ‘message’ to make a free enquiry and they will be happy to help you secure a great deal on a brand-new car (or van)! 

Have any additional questions about searching for your perfect lease deal? Give us a message on our available live chat and we will be happy to help.

Not sure how annual mileage affects your leasing deal, or even how to calculate your mileage? Find out everything you need to know in this handy guide.

Everything You Need To Know About Annual Mileage

You may be able to take out a car lease with bad credit if you can demonstrate that you can afford the monthly payments and are open to consider other options to improve your chance of being accepted for a car lease deal, such as paying a higher initial rental or having a guarantor. Although ultimately the decision will be down to our leasing partners, who have varying criteria, therefore this is likely to differ between them.

## What Credit Score Do I Need To Lease A Car?
To lease a car or van, our leasing partners typically require at least a good credit score to take out the lease. Our leasing partners will require a credit check to be passed, along with other checks, before being able to offer a lease agreement. If you have a credit score of 700 and above on the FICO credit check score, you will certainly be about to get food car lease offers. Anything above 670 on the FICO scale is seen as good credit, and if your credit score is below this then you may face some challenges. Therefore, this figure may be a good basis and goal to work towards before applying for a car or van lease and it may be a good idea to [check your credit score](https://www.experian.com/consumer-products/credit-score.html) to see where you are in comparison to this figure.
That said, our leasing partners and their funders have varying criteria when it comes to adverse or bad credit car leasing and some may be more lenient than others. In some scenarios, a funder may still allow a car lease for a person with a lower credit rating if they are able to prove they can afford the monthly payments, or potentially paying a higher upfront amount. If you have spotted a deal you like on LeaseLoco, you’re probably best to have an open and honest chat with our leasing partner to see if they are happy that they should be able to help before starting the formal application process.

## How To Lease A Car With Bad Credit
We know leasing can be tough when you’ve got bad credit. Here’s a few tips to help you if you’re finding it hard to gain a lease.
### Consider a **Guarantor**.
This is someone who agrees that they will pay your lease payments if you are unable to, often a family member. They will be responsible to cover your payments if you fail to do so and will usually need to have a strong credit rating. Although it is important to remember that not all funders will accept a guarantor and if the monthly payments are not made on time, then both the applicant and the guarantor will have their credit score affected.
### Apply for a **Joint Account**.
You can apply for a joint account with a partner or family member and use both of your personal details in the application. Both parties in the joint account will be responsible for making the payments and both parties will need to be living at the same address. However, only certain funders will do this, so best to double-check this when enquiring.
### **Higher Interest** Lease Agreements
Certain funders will accept car leasing for those with bad credit based on the agreement that they pay a higher rate of interest. This is due to funders often considering how much of a risk an applicant with bad credit poses and will set a rate of interest based on this.

## Ways To Increase Your Credit Score
If you’re looking to simply increase your credit score in general to increase your chances of being accepted for a lease deal, we’ve got a few tips worth looking into.
### Register to vote
By registering to vote, you are proving where you live by providing your current address, which helps to improve a poor credit score.
### Make payments on time
Pay any bills or accounts on time to show leasing companies that you can make payments on time and are responsible with your finances.
### Ensure you have credit history
If you have no financial history then it may be a challenge to get a lease deal secured as the funders have nothing to judge how capable you are of handling your finances. Therefore, it is important to make sure you have some financial history.
### Avoid linking yourself financially with others with poor credit
By linking yourself financially to someone, such as through a joint bank account, you may be co-scored and if they have a poor credit score, this can have an impact on yours. If you are splitting up with a partner, it is important to separate your finances.
### ‘Soft-check’ when you can
Some lenders, including some of our leasing partners, will be able to soft check you, to see if you would be approved. This check does not impact your credit score as opposed to hard checks, so do this when possible.
### Experian Boost initiative
Experian has created an initiative that helps increase credit scores by sharing how you manage your money, including payments to savings accounts, council tax, Netflix etc.
### Use rebuilding cards to build history
There are credit-building cards designed for those with poor credit, usually with a low limit and high interest. However, these cards show that you are paying bills and show you are reliable financially.

## How Will Car Leasing Affect My Credit Score?
Car leasing is similar to anything else that you pay monthly and will affect your credit score. So long as you make the payments on time then it will help improve your score by showing you are paying regular payments. As a car lease is essentially a ‘loan’ and you are simply paying the total cost of the lease for the car back to lenders, it is a form of finance.
If you don’t make the monthly payments on time, then your credit score is likely to be negatively impacted. You may also be negatively impacted if you apply for finance from the funders and are rejected, as this will show up on your report.

## Can I Lease A Car Without A Credit Check?
Unfortunately not. Our leasing partners will require a credit check to be passed before being able to offer you a lease deal as this is the best way for them to determine whether you will be able to make the monthly payments. Don’t be mistaken by ‘no credit check car leasing’ as these will certainly be misleading. The BVRLA states that all BVRLA leasing broker members adhere to FCA rules and will carry out credit checks, and those who don’t may be out to scam you – so be wary!
Even though a credit check is required, the best thing to do is have a conversation with our leasing partners about your circumstances and see what they advise as they may well be able to assist you, even if it's just pointing you in the right direction.

## Ready to Lease Your New Car?
If you have a good credit score, you will be likely to be accepted for a car lease, although if you are looking for a car lease with bad credit then it’s worth finding out what our leasing partners can possibly do for you.
Now that you have read all about car leasing with bad credit, you can search and compare the millions of car lease deals available at [LeaseLoco](https://www.leaseloco.com/) to find the perfect deal for you and make a free enquiry with our leasing partners.
If you’re new to leasing and have some more questions, feel free to read our [FAQs](https://www.leaseloco.com/faqs) which you may find useful as it covers the most common questions asked about leasing with LeaseLoco. If you have any additional questions about searching for your perfect lease deal, give us a message on our available live chat and we will be happy to help.

Wondering if you can still lease a car with bad credit? Discover how you can lease a car with a low credit score and what steps you can take.

Contracts & Finance