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2015 was dubbed the best year for UK car sales, with a record 2.6 million new cars registered over the twelve months.

car hire purchaseRepresenting a 6.3% increase on 2014, last year’s sales figures contributed to a fourth year of consecutive growth for the automotive industry.

So – and please excuse the pun – what’s driving this increase? Lower fuel prices are a safe bet, as is rising consumer confidence, but the prevalence of easy, low-cost credit solutions such as hire purchase and leasing have also helped one of our oldest industries recover spectacularly from the financial crisis.

As a consumer, you may not immediately think ‘lease’ when you think ‘buy new car’. In fact, the preference to lease rather than purchase vehicles for personal use has taken quite a while to become popular on these shores. The Americans are very fond of it, and it appears we’re starting to catch on, too.

Personal car leasing – also known as ‘personal contract hire’ – isn’t for everyone, so let’s take a look at why it may or may not be an option for you.


How does leasing work?

If you lease a car, you don’t own it. The leasing company retains effective ownership and simply charges you for the privilege of driving it. Lease payments are usually based on the estimated depreciation of the vehicle in question. You therefore pay the cost of that depreciation – along with a bit on top for the lease provider’s trouble – for an agreed term of 3-5 years.


What does personal contract hire include?

One advantage of leasing your car is the fact you’ll receive more than just the vehicle itself. Here is what is typically included in a contract hire package:

  • Road tax for the duration of the hire
  • On-going support from the leasing provider
  • Maintenance of the vehicle which often extends as far as consumables such as tyres


Do I qualify for personal contact hire?

Leases aren’t available to everyone, so bear in mind the following criteria before you start short-listing cars:

  • You’ll need to be aged 18 or older
  • A full driving licence must be held
  • 3 months’ of employment history will be called upon by the lease provider
  • A good credit rating will be advantageous


What are the benefits of leasing a car?

  • You can still choose the exact make and model of the car you want to drive
  • Upgrading to a better model becomes a very real option due to the minimal impact on monthly payments
  • If you opt for the maintenance package, you’ll enjoy a long period of hassle-free motoring including trips to the tire shop for tuneups and basic maintenance
  • If you’re using a company car allowance to pay for the lease, you won’t be subject to Benefit in Kind taxation
  • There’s no risk of vehicle depreciation


What are the disadvantages of leasing a car?

  • You’ll never own the car and therefore won’t benefit from being able to sell it on
  • Most leases impose driving limits of a certain number of miles per annum (starting at 10,000) with fees per mile thereafter enforced
  • There are penalties if you want to end the term early
  • Some leasing companies require you to have higher – and therefore more expensive – insurance cover



Leasing could be a great way for you to comfortably afford the car you’ve always wanted. However, just like the pros and cons of hire purchase, there’s a lot to take into account before taking the plunge.

The key question to ask yourself is whether or not you’re comfortable with the idea of never truly owning it and therefore being unable to benefit from any re-sale value. Are the above advantages enough for you to look past that fact? For many, they clearly are.

This is a guest post from Mark Ellis, personal finance blogger at BusinessFiction. Please be aware that this article does not constitute financial advice and is intended for informational purposes only.