Leasing is a preferable option for drivers who want to upgrade their car every few years, as it offers lower monthly payments compared to buying a new car. If you want the most cost-effective option, leasing a used car might be the solution you're looking for. This article breaks down what to expect from the process and how you can get the best deal on a used car lease.
According to new research on market transparency and consumer protection in the used car industry, the UK was rated as the best place in the world to buy a used car.
When you're buying a used car, you have three options: leasing, financing, or buying it in cash. As most drivers don't have the funds to buy a car outright, more than 90% of those who want to own their car finance it.
But what about those who don't want to own it? Nowadays, 1.6 million drivers (roughly 20% to 30%) lease their cars.
This is primarily seen as an option for new cars (people generally finance a used car). But leasing a used car is becoming more popular, as it offers the best of both worlds — lower monthly payments than a new car lease and reduced cost of ownership akin to buying.
Can you lease a used car in 2024?
Yes, you can lease a used car in the UK. Leasing a used car operates similarly to leasing a new one, involving a set period of monthly payments, after which you return the vehicle to the leasing company.
The process for leasing a used car is quite simple:
- Pay an initial rental fee.
- Pay a set monthly rental amount for the agreed lease term.
- Adhere to yearly mileage limits.
- Return the car at the end of the lease term or opt to buy it outright.
It's important to note that you do not own the car at the end of the lease term; it must be returned to the leasing company.
The pros and cons of leasing a used car
While it may seem like a great deal to lease a used car, there are both pros and cons to consider before making a decision.
Pros of leasing a used car:
- Lowest-cost option. Leasing a used car generally results in lower monthly payments compared to leasing a new car (which is already less expensive than financing a car, new or used). The used car has already undergone significant depreciation, which reduces its overall value and the leasing costs associated with it. It also makes the financial impact of the lease more predictable.
- Inclusion of services. Many used car leases come with benefits like inclusive road tax, breakdown cover, and optional maintenance packages. Of course, these benefits can vary depending on the leasing company and the specific lease agreement
- Immediate availability and delivery time. Used car leases can often be arranged more quickly than new car leases. Since the vehicles are already in stock, they don't need to be manufactured or shipped from a factory. This makes them ideal for someone who needs a vehicle quickly.
- Flexible contract options. Used car leases often come with flexible contract lengths and mileage options, allowing you to tailor the lease to your specific needs and driving habits. By contrast, new car leases are quite rigid because they're based on the manufacturer's terms.
- Always drive something 'new'. Used car leases involve ex-lease or pre-owned owned vehicles. They've been refurbished and inspected to meet quality standards. While they've already depreciated quite a bit, they're still reliable vehicles you can lease for a few years. And you won't have the car long enough to experience any significant wear and tear or maintenance issues.
Cons of leasing a used car:
- Higher maintenance costs. While used cars can be inspected and refurbished, they sometimes still require additional maintenance and repairs. Without an existing warranty, these costs can add up, potentially offsetting the lower monthly payments.
- Fewer choices. The selection of used cars available for lease is generally smaller than that of new cars. You might have to compromise on specific features, models, or colors that you prefer.
- MOT requirement. While new car leases generally don't last longer than the three-year MOT requirement, you'll need an MOT certificate for a used car (assuming it's more than three years old). Unless you're leasing a very new used car, this is an extra cost and step to car ownership.
- Lease terms. Just like new car leases, mileage limits and requirements to keep the car in good condition limit the control you have. Exceeding these limits or returning the car with excess wear and tear results in additional charges at the end of the lease term.
- No equity. Leasing a used car does not provide an option to purchase the car at the end of the lease term (though you can sometimes request this in the final month of your lease agreement), unlike some financing options like PCP (Personal Contract Plan). This means your payments will not build any equity in the vehicle.
Upfront payments. Even though the monthly payments are lower, you still need to make an initial payment (typically equivalent to one to twelve months of charges), which can be substantial upfront. Since you have no equity in the vehicle, this is essentially lost money.
Requirements to lease a used car
To lease a used car in the UK, you'll need to meet several general requirements and follow a set procedure. The process may vary slightly depending on the leasing company and the specific lease agreement, but generally, you'll need to meet these requirements:
- At least 18 years old, though some leasing companies may require you to be 21 or older
- A valid UK driving licence
- Proof of address, including utility bills or bank statements
- Proof of income and employment status
- A credit check to assess your financial stability and ability to make the monthly payments. A good credit score increases your chances of approval
- Your bank's name, address, sort code, and account number (to set up direct debit payments for the lease)
Standard terms of a used car lease
Most used car leases come with standard terms and conditions. These may vary slightly between companies, but generally include the following components:
Lease term
Used car leases typically range from 12 to 36 months, though some agreements may extend to 48 months. Shorter terms are occasionally available, but will carry higher monthly payments.
Initial and monthly payments
When you start your lease, you'll have to make an upfront payment, anywhere from one to twelve months' worth of lease payments. This is not a deposit, as it is not refundable. But a higher upfront payment reduces your monthly payments.
Throughout the duration of your lease, you'll make fixed monthly payments. These payments are generally lower for used cars compared to their new counterparts due to the depreciation already accounted for in used vehicles.
Mileage limits
Lease agreements include an annual mileage limit, typically ranging from 5,000 to 25,000 miles per year. Exceeding this limit incurs additional charges at a certain number of pence per mile. It's important to accurately estimate your annual mileage when signing a lease agreement to avoid unexpected costs.
Comprehensive insurance mandatory
When leasing a car, whether new or used, you are normally required to carry fully comprehensive car insurance. This type of insurance covers a wide range of potential damages, including those from accidents, theft, vandalism, and natural disasters.
This requirement is standard for car leases because the leasing company wants to protect its investment in the vehicle, as they retain ownership of the car throughout the lease term.
Maintenance and condition
Lessees are wholly responsible for maintaining the vehicle in good condition. The car must meet the leasing company’s standards for wear and tear upon return, following guidelines set by the British Vehicle Rental and Leasing Association (BVRLA).
Depending on the type of car, your lessor may require you to periodically service the car at an approved garage. This is common for higher-end vehicles like Mercedes-Benz and BMW, which require specialised servicing.
This means if you damage the car or it requires maintenance not covered by the warranty, you'll be responsible for the costs. Some leases do offer optional maintenance packages that cover servicing, MOT tests, and repairs to help you manage upkeep costs.
Inclusive services
Most used car leases include road tax and a minimum of six months breakdown cover as a way to add value and reduce the hassle for the lessee.
If you aren't making a purchase from a dealer nearby, you can usually arrange a complimentary delivery of your leased vehicle upon purchasing it as well. Most used car lessors will deliver to any UK mainland location, with delivery times typically within 14 days of order.
End of lease terms
At the end of the lease term, you will return the vehicle to the leasing company. A team member will inspect the car for any damage beyond fair wear and tear and apply charges for anything out of the ordinary. They'll also check the odometer and apply excess mileage charges if you've exceeded your limit.
Many standard lease agreements do not offer an option to purchase the car at the end of the lease term. You may be allowed to request to purchase the vehicle in the final month of your term, but you should still have a Plan B in case your request is rejected or not processed in time.
How to find dealerships that offer used car leases
To find dealerships that offer used car leases in the UK, there are several effective methods and resources you can explore:
1. Online leasing platforms
Websites like Leasing.com, Nationwide Vehicle Contracts, and Hippo Leasing are excellent starting points. These platforms aggregate offers from various dealerships and brokers, allowing you to compare deals across a wide range of vehicles and terms.
They often have sections specifically for used car leases and provide detailed information on the available vehicles, including mileage, lease terms, and monthly costs.
2. Specialised leasing companies
Certain companies specialise in leasing used cars. For instance, Select Car Leasing offers a variety of "Re-Lease" vehicles, which are typically end-of-contract lease cars that have been well-maintained. They provide flexible contract lengths and mileage options, and their vehicles are usually ready for quick delivery.
3. Comparison sites
Websites such as MoneySuperMarket and AutoTrader also feature sections for used car leasing. These sites allow you to filter your search based on criteria such as vehicle make, model, lease duration, and monthly payment, helping you find the best deals from reputable providers.
4. Dealership websites
Many traditional car dealerships, including those for brands like Audi, BMW, and Mercedes-Benz, offer certified pre-owned (CPO) car leasing options. These vehicles often come with manufacturer-backed warranties and have passed rigorous inspections. Visiting the websites of these dealerships or contacting them directly can provide specific leasing options and promotions.
5. Broker services
Leasing brokers like Green Apple Leasing and First Vehicle Leasing can help you find used car lease deals tailored to your needs. Brokers have access to a broad range of vehicles and can negotiate on your behalf to secure favourable terms.
6. Ex-demo and ex-lease vehicles
Dealerships often lease ex-demo and ex-lease vehicles for a fraction of their new price. These cars are usually only a few years old, have low mileage, and have been maintained to high standards. Check with dealerships that advertise such vehicles, and ask around for hidden offers like these.
How does leasing a used car affect insurance rates?
Although leasing a car doesn't inherently increase the insurance premium, the stringent requirements set by leasing companies usually result in higher premiums compared to insuring a car you own outright or finance.
There are a few factors that drive up the cost of an insurance policy for a used car lease:
- Gap insurance. Gap insurance covers the difference between the car’s actual cash value and the remaining amount owed on the lease if the car is totaled or stolen.
- Higher liability limits. Commonly, this includes coverage of £100,000 for bodily injury per person, £300,000 per accident, and £50,000 for property damage. These higher limits help ensure that in the event of an accident, the financial interests of the leasing company are protected.
- Comprehensive and collision coverage. Used car leases require comprehensive and collision coverage, which covers damages to the leased vehicle.
Several factors influence the overall cost of car insurance, including the type of car, its safety features, and how new it is. Personal details like your location, driving history, age, and credit score also play a role in the final price of insurance cover. That said, these factors apply whether you lease, finance, or own the vehicle.
To manage the higher insurance costs associated with leasing, consider shopping around for the best insurance rates, increasing your deductible, bundling insurance policies, and maintaining a good credit score. Some insurance providers offer discounts for features like anti-theft devices and good driving records.
Can I negotiate the terms of a used car lease?
The most significant aspect you can negotiate is the capitalised cost of the vehicle itself. By lowering this price, you reduce the overall cost of the lease, which in turn decreases your monthly payments.
You can also negotiate the amount of the initial payment, also known as the down payment or initial rental. A higher initial payment can reduce your monthly payments, and some flexibility exists here depending on your financial situation and preferences.
If you need higher mileage options, you can sometimes negotiate the excess mileage fee ahead of the contract. This is a good idea if you know you'll need to use the car heavily and want to avoid costly excess mileage charges at the end of the term.
There are, however, some terms that are non-negotiable. These include VAT, interest rates, depreciation fees, and administrative costs.
Before entering negotiations, research the vehicle’s market value and compare offers from multiple dealers. To start, use our free car valuation tool to look up the estimated value of any car on the road.
What are the penalties for early termination of a used car lease?
Early termination usually involves paying a substantial fee, up to 50% of the remaining lease payments. For example, if you have £6,000 left to pay on your lease, the termination fee might be around £3,000.
Some leasing agreements might specify a fixed percentage of the outstanding payments as the early termination fee. For instance, Volvo Cars UK charges 40% of the remaining payments if you terminate your lease early.
Some leasing companies allow you to transfer your lease to another party. This can mitigate the termination fee but may come with its own set of administrative costs and restrictions.
How does your credit score affect used car leasing?
Leasing companies will perform a credit check as part of the application process. They will look into your payment history, outstanding debts, and any financial red flags like County Court Judgments (CCJs) or bankruptcies.
A higher credit score usually means lower interest rates and fees, making the lease more affordable. To mitigate the increased risk on the lessor's side, those with lower credit scores are normally required to make larger initial payments to secure a lease.
Keep in mind that different leasing companies use various scoring systems and may have different risk appetites. So, an application might be declined by one lender but accepted by another.
Can I lease a used car with bad credit?
Most leasing companies prefer applicants with a "good" to "excellent" credit score. According to Experian, a score of 881 to 960 is "good", while any score above 960 is "excellent". A leasing company might still consider you with a lower score, but with additional requirements or higher costs.
If your credit score is low, some leasing companies might accept a guarantor or allow for a joint lease with someone who has a better credit rating. This reduces the risk for the leasing company and can make it easier to get approved.
While it's possible to lease a car with bad credit, you'll have more favourable lease terms if you improve your credit score before applying for a lease. You can accomplish this by paying off your debts, strategically opening new credit accounts, making timely payments, and ensuring there are no errors on your credit report.
Final thoughts
As a used car lessee, you have certain responsibilities that someone who buys their car in cash or finances it doesn't have. You'll need to purchase a higher liability insurance policy, cover the cost of damages and repairs, and maintain the car according to the manufacturer's standards.
That said, leasing also offers unique benefits like lower monthly payments, easier access to newer models, and less stress over depreciation costs. And leasing a used car amplifies those benefits while potentially getting you an equally "nice" car at a lower cost.
As with any financial decision, it's crucial to thoroughly research your options and carefully consider your budget before entering into a leasing agreement.
To start: Use our tools to assess the car's value and check its MOT history.
