What is Car Leasing?

July 25, 2023

VW Key held up against a car with COCOON on the back windscreen

Car leasing is a popular option for many drivers and companies in the UK. It offers an alternative to traditional car ownership, providing flexibility and convenience. In this guide we will delve into the concept of car leasing, the benefits, drawbacks and essential factors to consider before opting for this financing method.

Understanding Car Leasing

Car leasing is essentially a long-term rental agreement that allows drivers to use a vehicle for a specified period, usually between 2 to 4 years, in exchange for fixed monthly payments. Unlike traditional car financing, where you aim to own the vehicle at the end of the loan term, leasing enables you to use the car during the lease period and then return it to the leasing company once the term ends.

How does Car Leasing work?

In the UK, a car lease tpyically involves a three-party agreement:

The Lessor:

This is the leasing company or funder that owns the vehicle and allows you to use it for the lease term. They set the terms of the car lease and determine the lease payments.

The Lessee:

This is you, the driver or the company. You agree to the terms of the lease and make regular monthly payments.

The Manufacturer/Dealer:

This is the entity that suppliers the vehicle to the leasing company/funder at an agreed price.

The Broker:

Yes, we only put three-party agreement, but you may source your next car lease deal through a contract hire and leasing broker. On our 24 month plus agreements we broker on behalf of the car lease companies and funders.

What are the advantages of Car Leasing

Here are a few of the advantages of car leasing:

Lower Monthly Payments

One of the most attractive aspect of car leasing is the lower monthly costs when compared to a traditional finance method such as Hire Purchase or Personal Contract Purchase (PCP). Since you are only paying the vehicles depreciation over the term of the car lease, the monthly payments can be significantly lower than a hire purchase agreement.

New Cars and Upgrades

With leasing, you can drive a brand new car every 2, 3 or 4 years. This means you can enjoy the latest features, technology and saftey advancements without worring about the vehicles’s depreciation.

No Selling Hassles

Unlike with traditional car ownership where you have to sell or part exchange a vehicle when it comes to wanting to change, car leasing eliminates this. Once the lease ends, you simply hand the vehicle back to the leasing company or funder.

Tax Benefits

For business users looking to take out a business car lease, it can offer tax advantages. It is always worth speaking to your accountant to find out what you can claim based on your circumstances.

Things to Consider and Drawbacks

There are a number of things to consider before agreeing to a car lease:

Mileage Limitations

Almost all car lease agreements come with a mileage restriction. Exceeding the contracted mileage will result in an excess mileage charge. It is really important to estimate your average annual mileage before agreeing to a contract hire agreement.

You Never Own The Car

With leasing, you are only ever borrowing the vehicle from the leasing company or funder. Even at the end, you will never take ownership of the vehicle. If you did want your goal to be ownership you need to research alternative funding methods such as hire purchase, outright purchase or PCP.

Wear and Tear

When your lease car goes back to the leasing company or funder, it must meet the return conditions of the terms and conditions, these are usually inline with the BVRLA Fair, Wear and Tear guides. Any damages outside of these return conditions may incur additional charges.

Early Termination Costs

Terminating the car lease before the agreed term can lead to an early termination charge, this is usually equivilent to the outstanding rentals on the contact, but could be more depending on the terms and conditions of the contract.

How to avoid early termination charges

We all know circumstances can change, whether its a change on job or a growing family, sometimes a 2 year contract might not be right for any of us after 12 months.

If you need something flexible, it might be worth considering a short-term solution. Here at Cocoon Vehicles we offer a few different options whether you need a flexible arrangement or if you don’t want to sign into a 2, 3 or 4 year lease term, see below the different options:


Car leasing can offer a practical and affordable way for UK drivers and businesses to access the latest vehicles without the hassles of traditional car ownership. It suits those who like true fixed cost motoring with fixed budgets. It also appeals to those who like to drive the latest cars with new technologies and features.

It is really important to weigh the advantages against the drawbacks, consider your driving habits and understand the terms of the lease before signing anything. Using a reputable car leasing broker such as ourselves can help you find the best lease deals tailered to your needs and preferences.

We also offer a Find A Car Lease service where we can search the market for the best car lease deals available in the UK. We use no less than 12 different funders and we can also access manufacturer-backed funders such as Alphabet, Mercedes Finance and VWFS. It is free to use and you are under no obligation to go ahead.

There are so many circumstances where you may need that flexible vehicle, just call the team on 0330 330 9425 to see how we can help you!

City Car
4 Wheel Drive