Car Leasing For Young Drivers: The Complete Guide
Leasing a car has become a popular alternative with young drivers than more traditional methods such as buying a car, motor finance or even personal contract purchase (PCP) over the years. Statistics from Experian suggest that at least 20% of 18-24-year-olds now lease.
So, if you’re looking to join that growing demographic but don’t know much about the ins and outs of a car lease, our complete guide has got you covered. From the nitty-gritty details, to our top tips and everything in between, read on to find out everything there is to car leasing for young drivers, or use the below contents to jump to the section that is most relevant to you.
Can young drivers lease a car?
A car lease is a type of vehicle finance that allows you to hire a new car for a chosen period of time by paying uniform monthly payments. During the contract length, you will be responsible for the car’s maintenance, running costs and insurance, but you will never own it. This means you get the joys of driving a brand new car without having to buy it.
Since a lease agreement is a financial contract, you do need to be at least 18 years of age. You will also need a full valid UK driving license and undergo a credit check to prove you can afford to pay the monthly payments as dictated by your contract.
If you are currently under the age of 18, you will need to wait before you can lease your first vehicle. However, you can use this time before you turn 18 to pick out your dream car with Moneyshake’s manufacturer, price and budget searches and to start building your credit score to ensure you pass the credit check.
For further information and a more detailed explanation, check out our complete guide to car leasing.
Do I need a guarantor?
If you’re young with little or no credit history, then it may be unlikely that you will be approved for finance. However, that doesn’t mean you can’t get a lease deal and in this situation it might be possible to use a guarantor.
A guarantor is someone who acts as a safety net and will take on your payments should you be unable to make them. The most common form of guarantor is a parent or family member, but anyone over the age of 21 with a good credit score can act as a guarantor as long as they aren’t linked to you financially i.e. a spouse.
An alternative to a guarantor, would be for a parent to be the leaseholder while you use the car. In this situation your name will still be on the agreement and failure to pay the monthly payments by the leaseholder will mean the responsibility is passed to you. Moreover, you will need to be fully insured in order for this to be a possibility.
Before undertaking a contract with a guarantor or a differing leaseholder, make sure you understand the risks. It may be more appropriate to delay your lease and build up your own credit score in the meantime.
See our other guide for everything you need to know about car leasing with bad credit.
How does leasing differ from PCP?
Vehicle leasing and personal contract purchase (PCP) are both popular ways of hiring a new car, but there are two main differences to consider.
Firstly, unlike leasing, PCP comes with the option to own the car when the contract ends. Once your PCP agreement is finished, you are given the option to purchase the vehicle at a price decided upon at the start of your contract. Ownership is not possible through a car lease.
Secondly, the cost of each is worked out slightly differently. With leasing, you pay a standard monthly fee dependent on your contract length, the vehicle’s predicted depreciation and initial payment. However, with PCP things are a bit more complex as the monthly payments for your PCP deal are calculated by working out the difference between the car’s retail price at the start of your contract and its end-of-contract value as determined by the provider.
Discover our other guide for a full comparison of leasing and PCP before making your decision.
How much does it cost to lease a car?
When it comes to deciding on your chosen vehicle, there are a number of factors that contribute to determining the overall cost.
Make and model
A key factor contributing to the lease cost, is the make, model and trim of the vehicle you are looking at. Similar to buying a car, the cost of a lease varies from car to car and from trim to trim. This means that an Abarth is going to be cheaper than a Porsche for example and a standard Volvo S90 is going to be cheaper than a Hybrid S90 with Inscription trim.
Another significant factor that affects the cost, is your elected contract length. As you would expect, your lease will cost more the longer you hire the vehicle for i.e. overall a two-year contract is cheaper than a three-year contract. However, the monthly payments decrease as the length of the contract increases, meaning over time it can be cheaper to hire a vehicle for longer, rather than taking out multiple shorter back-to-back agreements.
The third main factor that comes into cost is your initial payment, which affects the size of your monthly payments and can put more strain on your monthly budget. The initial payment equates to one, three, six or nine months of monthly payments and is an upfront lump sum that gets taken away from the total cost. Monthly fees are calculated based on the total cost less the initial payment, this means that while you will still pay the same amount over the term of your contract, the higher the initial payment the lower your monthly payments will be.
Is insurance needed on a lease car?
It is a legal requirement that every vehicle on the road is insured and lease cars are no different. However, it is worth checking whether or not your agreement includes insurance as part of the package, because while the majority don’t, there are exceptions.
If your vehicle doesn’t come insured, it is your responsibility to ensure that it is insured for the complete length of your contract. Moreover, you need to ensure you get the correct policy as leasing companies and providers require fully comprehensive insurance to best protect their vehicle.
Since it is known that car insurance for young drivers can be expensive, it is important that you pay attention to insurance costs when budgeting for your vehicle. Use online car insurance calculators to give you an indicative cost for insurance that you can use when budgeting.
Always remember to specify that the vehicle isn’t owned by you and that you are leasing the vehicle when filling out any policies.
While not required, it is advised that you also take out guaranteed asset protection or GAP insurance, for further peace of mind. The purpose of GAP insurance is to help cover you if your vehicle were to be stolen or written off, both of which would require paying out any outstanding finance on the vehicle to the funder.
What happens at the end of a car lease?
Assuming your car is in acceptable condition, you’re caught up with all necessary payments and you haven’t gone over your mileage limit, you can simply return your vehicle and if you’re not interested in another, just walk away. But if you’re not quite prepared for the return of your vehicle, here’s a summary of what to expect.
Although some providers will notify you of when you need to return the vehicle, not all will and it’s up to you to be proactive and organise the collection of your vehicle. Failure to do so in time will most likely result in late fees. Remember to pay attention to your provider’s collection policy to avoid any last-minute surprises as not all provider’s off collection on weekends or bank holidays.
On return of your vehicle, it will be inspected against fair wear and tear guidelines (see below) and the mileage will be checked and compared to that of your agreement. If your vehicle is excessively damaged or your mileage is over your limit, you will be charged in accordance to the necessary repair costs and the mileage rates stipulated in your contract.
Depending on your contract, it may be possible to return your vehicle early before all payments have been made, but this is usually subject to an early settlement fee. This means that you will be charged to return your vehicle before the contract ends, in accordance to the remaining length of the contract. It is worth checking how much this will be, because it could be more than the total payments outstanding.
What is meant by fair wear and tear?
On return of your vehicle, it will be inspected to ensure that it is returned in a reasonable condition. A policy of “fair wear and tear” is used to determine what is and isn’t acceptable damage. Knowing what is acceptable can help you to avoid potentially expensive repair bills.
The British Vehicle Rental and Leasing Association (BVRLA), have proposed wear and tear guidelines that have become an industry standard to determining what’s acceptable damage. These guidelines should be made aware to you at the start of your contract, but in essence wear and tear refers to damage that is resultant from normal driving use and not the result of error, misuse or an accident.
It is your responsibility to ensure the vehicle is returned in the best possible condition, which may mean fixing windscreen chips, polishing out scratches or replacing wheels for example, if you don’t think they will be covered by the wear and tear guidelines.
Top 5 leasing tips for young drivers
1. Choose a vehicle you can afford
Being honest with yourself in terms of what you can afford rather than what you desire, will lead to a more enjoyable and smooth leasing process and life. So be smart. Don’t hire a Porsche because you want to, if you can’t afford it!
Missing a payment can negatively impact your credit rating which can have knock-on effects with other financial decisions in the future including credit card applications and mortgages. Moreover, missed payments could lead to late fees, additional payments and ultimately, if it continues, the vehicle being repossessed.
Put in the necessary preparation and work out what you can and can’t afford taking into account the likes of initial payment, processing fees, insurance costs, potential repair costs and excessive mileage fees. Use our price search and deals to find your dream lease car that is within your budget.
2. Compare deals for the best price
Once you understand what you can and can’t afford, you can start searching for the best deals in your price range.
Make use of Moneyshake’s easy to use filters which allow you to search by manufacturer or see our special deals on popular models. These searches allow you to easily compare offers and find the best motor for you.
Remember: Take note of the spec and trim of the vehicles you are looking at so that you can breakdown what you’re getting for your money.
3. Consider a maintenance package
A maintenance package is an optional extra that provides peace of mind services and although packages vary from provider to provider, the most common features are servicing, repairs, mot, oil and breakdown recovery.
If you anticipate driving long distances, have a long term contract or feel you might be more accident prone due to being a new driver, a maintenance package is worth considering.
4. Be honest with your mileage
Mileage plays an important role in your lease agreement and during the leasing process you will be asked to choose an annual mileage cap. This mileage cap is used to help determine the cost of your lease and is used to evaluate your vehicle on its return.
The higher the mileage cap the more expensive your contract will be and if you exceed your limit you will be charged potentially expensive excess fees. So, by being honest with your mileage you’re making sure you choose the cap that’s right for you and it reduces the likelihood that you exceed your cap.
5. Choose an approved provider
All our providers on Moneyshake are both FCA regulated and BVRLA approved meaning you’re dealing with a reliable provider. However, this isn’t the case with all providers and it’s definitely something you would want to check before agreeing to a contract.
If a provider is FCA regulated they should advertise a regulatory statement and accompanying six-digit reference number which you can use to check their status on the Financial Services Register. This is often found at the bottom of the homepage of their website.
This is important because the FCA works to protect consumer interests, maintain the integrity of the financial system and promote effective competition in the interests of consumers. All of which result in a better and more reliable service for the customer.
Equally, if the provider is BVRLA approved they should advertise this and again this can often be found at the bottom of the homepage or on their about page if they have one. If you can’t find anything suggesting BVRLA approval, you can use the BVRLA’s member directory for an up-to-date list of all members.
Again, this is important as the BVRLA consult with the government to maintain industry standards that lead to their members delivering safe, sustainable and affordable transport.
Cost-effective cars for young drivers
We’ve taken the liberty of finding some great deals on your behalf. All of which we believe are great for young drivers and cost less than £150 a month.
- Citroen C3 – from £124 a month
- Suzuki Swift – from £144 a month
- Toyota Aygo – from £107 a month
- Hyundai i10 – from £128 a month
- Nissan Micra – from £137 a month
- Ford Fiesta – from £137 a month
For more of our tips check out our First Time Lease Tips guide.
If you’re looking to learn more about leasing or for answers to our FAQs, visit our handy guide page. Or if you’re ready, you can begin your search and see our latest business and personal leasing deals here.