How much does it cost to lease a car?

When you lease a car, you get the benefit of having a new car outright without needing to buy it, so it can be a flexible and cost-effective way to get yourself on the road.

Research commissioned by The AA suggests that affordability is becoming increasingly important for many drivers when deciding how to access their next vehicle.

Car leasing is not always more expensive than buying. The total cost depends on the vehicle, the agreement terms and how the car is used. Leasing can offer predictable monthly payments, access to newer vehicles and a lower upfront commitment than buying outright.

What is included in a car lease agreement?

In general a car lease agreement usually includes fixed monthly payments, road tax for the duration of the agreement and the manufacturer’s warranty.

The monthly cost is based on the initial payment chosen, the mileage selected and the term selected. A lower allowance normally means a lower price, because there should be less wear and tear if you drive less. You should choose a mileage allowance that reflects how much drive or you’ll be charged an excess mileage fee.

Some providers, such as The AA, also offer optional maintenance packages.

Typically insurance, fuel and charging costs aren’t included in lease agreements. However, some suppliers, including Octopus, will offer deals on electricity tariffs or credit for electric car charging as promotional offers, so do review the options available.

What is the average cost of leasing a car?

It’s hard to determine an average cost because there are so many factors that determine the price. That said, it’s possible to find leases from as little as around £150 a month and cars that go beyond £1,000 a month. It really depends what car you’re looking at.

Car leasing costs: A breakdown

What factors affect the cost of car leasing?

There are multiple factors that determine the cost of a lease. These include:

• Vehicle choice. If you choose a smaller, less expensive car then the lease payment will be smaller. And by the same logic, choosing a more expensive car or model will have higher payments.
• Contract length. This is normally between 2 and 4 years, with 3 years the most popular. It’s possible to get longer and shorter contracts, but that’s rare. Shorter contracts mean higher monthly payments, while longer contracts have lower monthly payments.
• Annual mileage allowance. Try to pick a mileage amount that’s accurate, otherwise you may get charged. The higher your mileage allowance, the higher your monthly payment.
• Initial rental amount. You’re normally required to pay some of the cost upfront and you should be able to select the number of monthly payments you wish to pay as an initial payment. The more you pay, the lower your monthly payment.
• Optional maintenance packages. Some providers, like The AA, offer the choice to include an add-on that covers you for routine servicing, repairs and unexpected wear and tear. If you do this your monthly payment will be higher, but you’ll have more certainty about overall car costs and it can be a useful safety net against sudden, expensive garage trips.

Typical monthly costs by vehicle type

Tips for reducing lease costs

There are lots of factors that go into calculating a lease cost, which means there are a lot of ways you can reduce that cost. Here are some that you should consider:

1. Be realistic with your annual mileage. It’s important to work out how much mileage you’re going to need included in your lease. If you opt for too little then you may have excess mileage charges, while if you get a significantly bigger allowance you may be spending more money on monthly costs than you need. Work out how much you’ve driven in recent years and how much you’re likely to drive with a new car.
2. Choose in-stock or special offer models. If you’re flexible with the car you want then you can save money. There are often special deals on specific models, colour and trims, so go in with an open mind. Plenty of providers offer special deals, including The AA and Select Car Leasing.
3. Choose your initial rental payment. A larger upfront payment means a lower monthly payment. This won’t reduce the overall cost but it might help you with your monthly budget.
4. Compare overall contract length. Longer leases mean lower monthly payments but you might end up having to pay more with regular maintenance as the car ages.
5. Some providers also offer optional maintenance packages. These packages offered by the likes of The AA can help spread servicing and maintenance costs across the agreement term.

Leasing vs buying a car: What is the difference?

Leasing

Leasing may suit drivers who want:

• Lower upfront costs
• Fixed monthly payments
• Access to newer vehicles
• A vehicle for a set period only

Buying

Buying may suit drivers who want:

• Ownership of the vehicle
• No mileage limit
• The option to keep the vehicle for as long as they want
• Long-term flexibility

The best option depends on your budget, driving habits and what matters most to you. Comparing the total cost and flexibility of each option is usually more helpful than looking at the monthly payment alone.

How do I decide whether leasing is right for me?

It can help to think about:

• How much you can afford upfront. Typically, leasing requires a much smaller payment upfront compared to buying a car outright, so if you have a smaller budget, car leasing might be the more feasible option for you.
• How many miles you drive each year. Lease agreements include pre-set annual mileage limits, and you’ll incur penalty fees at the end of the term if you exceed them.
• Whether you want to own the vehicle. When a lease ends you have to return your vehicle to the lender without taking ownership of the vehicle, so if you want to actually own your vehicle, leasing may not be the best option for you.
• Whether you prefer fixed monthly payments. Lease payments remain predictable for the duration of the contract, meaning you know what you’ll be paying each month and that can make it easier to budget.
• How often you want to change vehicles. If you’re someone who likes having a new car every few years then a lease makes that easier, because you won’t have to worry about selling your old car to get a new set of wheels.

Bottom line

Car leasing can provide you with a flexible alternative to car ownership. Leasing could offer lower monthly payments, and there is the option to choose another brand new lease car at the end of the term and start a new contract.

The cost will depend on a range of factors including the choice of vehicle, contract length, annual mileage allowance, initial rental amount and any optional extras you’d like to include.

Frequently asked questions

Written by

Jason Loewenthal

Senior writer

Jason is a writer and editor. He worked as a senior subeditor for Finder for 5 years and in that time became familiar with a wide range of financial products and services. Before that, he worked for Australian Associated Press. He has a BA from Macquarie University in Australia. Jason loves to help other people find new ways to save money. See full bio