Car leasing has grown in popularity in the UK over recent years. A car lease or contract hire agreement lets you drive a brand new car for a low monthly payment. And, when the lease is up, you have the choice of handing the car back to the leasing company and choosing a brand new model.
However, if you’re thinking of signing a car leasing agreement it’s important that you understand what you’re signing up to. Philip Reed, senior consumer advice editor at a US car advice site, says: “People make a lot of mistakes when setting up their car leases and it can cost them a lot of money.”
Our guide looks at three common car leasing mistakes that you should avoid. Don’t sign a car lease without reading this advice first…
1: Underestimating your annual mileage
Many car leasing companies are able to advertise vehicles with low monthly payments because these leases are based on a low annual mileage. Some leasing deals assume an annual mileage as low as 5,000 miles.
However, if you sign up to a low annual mileage and then exceed the limit, you could end up paying hundreds of pounds in additional fees. Car leasing expert David Jacobson says: “You could wind up owing a lot of money for miles when it’s time to turn in the car.”
Make sure you have a very good idea of how many miles you will drive before you sign the contract hire or leasing agreement. If you know you will drive a higher mileage than the limit, ask for a higher limit.
2: Not keeping your car in good condition
If your car has damage that goes beyond normal wear and tear when you hand it back to the car leasing company, you could face extra fees. While ‘normal wear’ is generally acceptable, any additional damage to the car could see you face a substantial repair bill.
The definition of ‘normal wear’ can vary and so it’s important that you read your leasing agreement carefully so you know what is expected. You will normally find that you need to have the car maintained by reputable garages at the manufacturers’ recommended service intervals – you can also build this into your lease agreement by including maintenance.
3: Not taking gap insurance
The value of any new car drops significantly when you drive it off the dealer’s forecourt – and leased cars are no exception.
If a leased car is stolen or written off and your insurance company makes a payment for the value of the car, that amount may not cover your total obligation under the terms of the car leasing agreement. In this situation you may have to come up with the balance out of your own pocket – unless you have gap insurance.
Gap insurance covers the difference between the payout your car insurance company makes (or the market value of a car) and the amount you originally paid for it. It eliminates the risk that your car insurer won’t pay out enough to pay off your finance in the event of a loss.
At the beginning of any car lease, you should ask if the contract includes specialist gap insurance coverage. If it doesn’t, you should consider finding a car with a lease plan that does.
Mr Jacobson, the car leasing expert, says: “There is exposure without gap insurance. So, I would not lease a car without it.”