Hire Period, Mileage, Excess Mileage and Deposit
The hire period/contract term is the specific amount of time you will have the car in your possession.
Generally, the hire period for contract hire, i.e. leasing, is between 24 months (2 years) to 60 months (5 years). Some companies will let you lease a vehicle for a shorter period, such as 12 months, but this is usually the exception to the rule, and will generally need a big deposit.
Hire periods are applied to most asset finance, such as PCP (Personal Contract Purchase) or HP (Hire Purchase).
Your personal circumstances will dictate which hire period is best for you. Maybe a 24 month car lease is better as you are now working in the city and found a small, inexpensive car that you want to finance, or perhaps you’ve recently moved to the countryside and now want something a little more expensive and powerful to throw around and have fun with; a 48 month lease might suit you better.
Just be aware that if you do finance a car over a longer period; then yes the monthly payments will be less because you are financing the balance over a longer period, but you will also be paying more overall at the end of the term. For example: £250 x 36 months = £9,000. £200 x 48 months = £12,000.
Generally, 36 to 48 months is the sweet spot with Contract Hire or PCP (leasing); with longer terms being the better option on Hire Purchase (finance)
Annual mileage is the specific amount of miles you are allowed to drive for the period of time you have your vehicle.
If you have an agreement on a car lease to drive a vehicle for 10,000 miles per year, for 3 years, i.e. 30,000 miles total. Then that means you can drive for 30,000 miles over the entire period of your car lease. You are not limited to drive 10,000 miles every individual year.
Let’s say you want a 36 month lease, and you’ve already decided how you wanted to utilise your new car – you might only plan on driving 5,000 miles in your first year, then 25,000 miles over the following 2 years; that’s absolutely fine.
If you return the vehicle with less mileage than you previous thought, unfortunately, you wouldn’t get a rebate. The agreement cannot be retroactively changed mid-term on a car lease.
Annual Mileage Tip
Just be careful if you are considering a very high mileage agreement. Lots of car lease comparison sites and lenders use a pricing matrix called SMR (Service, Maintenance & Repair). It’s a specific set of maintenance numbers assigned to a specific vehicle, for a specific mileage over a specific term. The more mileage you want to do, the higher the overall number in this matrix. This number is then applied to a lease agreement and is very much a “what if” scenario.
Let’s break an example down for you. A manufacturer has sold 10,000 vehicles. Of those vehicles, 0.2% had a major component failure (engine/gearbox) at XXXX mileage. You, as a customer, would like to lease a vehicle that sits in that high mileage category. A percentage likelihood of that failure happening again will be apportioned to your specific car lease. You might only be paying £5 extra per month, and you won’t realise it’s been included in your lease, but it most likely has.
Its a very rare occurrence, as most leasing companies limit the amount of mileage they offer, but if you find a car leasing company that does offer high mileage leases, just be aware that these things can be included without your knowledge.
Excess Mileage Charge
Important: Make sure you check what the excess mileage charge is for your specific vehicle.
The ‘excess mileage charge’ is a fee that is paid at the end of your car lease if you go over your allocated total milage. For example, if you have a contract with a total mileage of 20,000 miles, and you return your vehicle with 22,000 miles, you’ll be liable to pay a charge.
The charge is assigned to the vehicle you have leased or the sector that vehicle sits in. (The SUV sector for example)
Generally the more expensive the vehicle, the more the charge will be. a Range Rover will have a considerably higher excess mileage charge than a Ford Fiesta, but it really depends on the provider. You will normally see charges between 3 pence and 30 pence per mile (ppm). It doesn’t sound like much, but if you did an extra 500 miles with a ppm of 30 pence, you’d be liable to pay an extra £150.
Car Lease Deposit
The initial deposit/initial rental (typically 1, 3, 6 or 9 months) is a one-off calculation based entirely on your monthly payments.
For example, if your final calculated monthly payment was £250 per calendar month, and you wanted to put down 3 months deposit, the deposit would be £750. In other words, £250 x 3 months. The more deposit you put down, the lower the monthly payments.
The visual structure of a car lease is usually ‘Deposit + Term’, so some examples you might see would be 3+35, 6+23 or 9+47. Individually these would be classed as 3 months deposit with 35 monthly payments, 6 months deposit with 23 monthly payments or 9 months deposit with 47 monthly payments. You can adjust any of these elements to suit your personal circumstances.
Stick with 3 to 5 year leases and you’ll get a good monthly rate without any additional maintenance being built into your contract because of age or mileage.