A Guide to leasing
Mar 12, 2025
6 min read
Like the idea of leasing a car, rather than buying one outright? You’re in the right place.
Leasing offers plenty of benefits for drivers (more on those in a moment) – so here’s everything you need to know about what leasing is and how it works.
What is leasing, and how does it work?
When you lease a car, you sign a long-term rental agreement, normally in the region of two to five years. During your lease, you’ll pay the same amount every month to drive your car.
When your agreement ends, you’ll either hand your car back to the leasing company or (in some cases) have the opportunity to purchase the car outright.
What’s included in your monthly cost will vary from provider to provider, but could include the following (depending on the package you opt for):
- Servicing and maintenance
- Tyres
- Motor insurance
- Breakdown cover
What are the different types of leasing?
If you’d like to lease your car rather than buy it outright, you have a few options:
- Personal Contract Purchase (PCP): You lease the car initially, with the option to purchase the car outright at the end.
- Personal Contract Hire (PCH): You lease the car for a set period of time, before either renewing the lease or handing the car back.
- Business Contract Hire (BCH): You lease the car for business purposes (for example a delivery vehicle), with potential to make VAT savings.
- Hire Purchase (HP): You spread the cost of your car over monthly payments so that you own the car at the end of your contract.
- Salary sacrifice: You lease an electric vehicle via pre-tax salary, saving on tax and National Insurance.
What’s the difference between PCP and PCH?
In a nutshell: PCP offers the opportunity to purchase your car at the end of the lease agreement. Under a PCH agreement, you’ll need to hand the car back.
Whilst the extra flexibility is nice, it’s worth noting that PCP payments are higher than PCH – and that the majority of the time, drivers hand back their car at the end of their leasing period anyway.
What’s the difference between leasing and buying?
Top line: under a leasing agreement, you’re paying to drive the car, not to own it. At the end of your lease, you may have the option to purchase your car outright, but until that point, you’re essentially renting the car.
Whilst it can seem odd to be making monthly payments towards something you might not keep forever, leasing offers many benefits to drivers, including:
- Low upfront costs - lower deposits and affordable monthly payments mean you can drive the latest models without making a huge dent in your savings account.
- No depreciation worries - as soon as you drive a car off the tarmac it depreciates in value (even if it’s pre-registered), but when you lease this isn’t something you need to worry about - at the end of the lease, simply hand the car back and get a new one.
- Flexibility (and fun) - when you lease, you can change your car every few years, so your car can grow with you (and all the innovative tech). You could start your leasing journey with a sporty two-seater and grow into a large SUV, all without the hassle that comes with buying and selling cars.
What happens at the end of the lease?
There are various options for you here, depending on the type of lease agreement:
- You return the car to the leasing company (PCH, BCH, salary sacrifice)
- You renew your lease for another set time period (PCH, BCH, salary sacrifice)
- You purchase the car outright, either through paying off the remaining value of the car (PCP) or through the total of the payments you have already made (HP)
What if I exceed the mileage limit?
After your lease expires and you hand the car back, your leasing company will check the mileage. If you have exceeded your agreed mileage, you may have to pay a charge.
Depending on your lease agreement, you may be able to increase your mileage limit during your contract if you find it’s not enough for your needs.
Is maintenance included in my lease?
Some leasing companies include maintenance in the lease. Exactly what this covers varies between providers – but they might include:
- Regular servicing and MOTs
- Damage repairs and replacement tyres
- Breakdown cover
Can I end my lease early?
This will depend on the type of lease you have so make sure to ask these questions when talking to leasing companies, and read your contract before you sign (it’ll detail any costs that could incur if you were to end the lease early).
Who is responsible for insurance?
Again, this depends on your agreement. In the majority of cases, personal leasing companies won’t cover insurance.
For salary sacrifice and other business leasing agreements, insurance is more likely to be included. In both cases, you’re responsible for providing up-to-date information for your insurers so they can give you an accurate quote.
Are electric cars available to lease?
Absolutely! In fact, at Octopus EV we only lease electric cars.
Right now, car manufacturers are pouring investment into their electric models, meaning that EVs offer some of the smartest, most exciting driving tech out there.
Discover the joys of electric driving with our three dedicated leasing schemes: