Charges to be Wary of When Leasing a Car
Leasing a car can be a tempting choice. We’ve all seen a car of our dreams before but can’t afford the full up-front cost. Leasing can help make your dreams a reality via lower deposits and low monthly costs. In the UK in 2018, over 1.6 million people were leasing their vehicles with this numbers set to increase.
However, before jumping in with both feet, you should understand the costs involved. Here, we will outline the charges involved in leasing a car to ensure you don’t go into it and incur unknown costs.
Late payments can affect your credit rating, so it’s very important not to miss payments. While not all companies will have a late payment charge, it’s certainly worth checking up on. If your provider does implement late payment charges, you’ll be charged no matter what, whether you forget to make a payment or if you can’t afford the costs. It’s important to inform your leasing company as soon as possible if you think there’s a chance you’ll miss a repayment.
Getting a lease car means you’ll have to be extra careful not to go over your agreed mileage. While your insurance on your car is an estimate, going above your mileage in a lease car can prove extremely costly.
At the start of your agreement, your monthly fees will be decided based on your overall annual mileage. Therefore, exceeding this total will see you paying an excess mileage fee due to the car’s overall value decreasing as the miles rack up. Depending on which finance company you choose, your excess rate may differ. However, it could work out to be as much as 70p a mile which, if you go over by 1,000 miles, would see your bill stand at an extra £2,100 on your standard three-year lease!
It goes without saying that if you damage the car, you’ll have to get it fixed— just as you would if you’d bought the car outright. However, ensure that you choose a reliable mechanic to carry out any necessary work. Not doing so can see you landed with a further bill when you hand your keys back in. As well as this, poor maintenance will see you receive a larger-than-expected end bill. Regular servicing is a must. While cars such as the BMW 1 Series have a large number of safety mechanisms to help you on your overall experience, not having a regular service can leave you with a hefty fee.
De-hire charges could see you pick up a bill if maintenance required on the vehicle is too substantial to be considered normal wear and tear.
This could be an issue in two ways:
- You want to buy your car early.
- Your circumstances have changed and you can no longer afford your payments.
Whatever the reason for wanting to break your contract, doing so could see you incur a fixed fee. However, this has to be under the agreement of your finance provider. An early termination is at the discretion of the provider and you shouldn’t just assume you’ll be entitled to one should you so wish.
If it’s a case that you can’t afford your monthly payments, speak to your provider and they may agree to extending your lease, which would then lower your recurring payments. Of course, before you enter into any agreement, you should ensure that you are aware of all the stipulations in your contract.
If you’ve decided on the car you want to lease, next up is singing your contract. However, as is the case in any contract you sign, the jargon used may be words you’re not sure of. Here are a few you may come across explained:
- GAP insurance — This stands for ‘Guaranteed Asset Protection’. It covers you in the event your vehicle is stolen or written off. It bridges the gap between the vehicle’s market value and the cost you originally outlaid.
- P11D value — This is the car’s value for tax purposes. It’s used by the Inland Revenue to calculate the company car tax payable.
- MGFV — This stands for ‘Minimum Guaranteed Future Value’ of the vehicle and is the amount which is decided by the leasing company that the vehicle will be worth at the end of the agreement. This is only applicable to PCP and business leasing deals.
Of course, there are many other charges to be aware of and other words you may not know in your contract. It’s crucial that before you sign up for a lease car you are clear on what you are signing up for. If in doubt, ask!