Understanding Your Vehicle Leasing Contract
A Car Leasing Contract is a legally binding agreement between you and the finance company (not with your broker or supplying dealer), and you need to enter into it with your eyes wide open. Read it thoroughly before you sign it.
By signing the Vehicle Leasing contract, you are agreeing to certain commitments, accepting certain requirements and acknowledging that there are restrictions on what you can and can’t do with your lease car.
The Terms Of The Contract
The Car Leasing Contract sets out the terms that have been agreed between you and the finance company, the main ones being:-
- The duration of the lease contract, usually two or three years
- The payment profile, i.e. the initial rental amount payable followed by the number of remaining payments
- The Contract mileage, which is the maximum mileage allowed under the agreement without incurring an additional excess mileage charge
- Whether Road Fund Licence (Road Tax) is provided for the duration of the contract or only for the first year
- Make the agreed monthly payments for the duration of the lease contract – be aware that if you have to terminate the contract early, it could be very costly
- Look after the vehicle, keeping the interior and exterior of the vehicle in good condition – keep in mind the Fair Wear And Tear policy of the finance company and possible de-hire charges at end of contract
- Keep the vehicle in a roadworthy condition and carry out routine maintenance and level checks in accordance with the manufacturer’s recommendations
- Ensure that the vehicle is serviced promptly at the correct service intervals at a reputable garage, making sure that the Service Handbook is stamped each time
- Pay for the cost of servicing and maintaining the vehicle unless you have taken out a car lease Maintenance Package
- Continuously insure the vehicle on a fully comprehensive basis for the duration of the contract
- Make sure that the lease car has a valid Road Fund Licence at all times – this may be chargeable after the first year
- Pay all driving/motoring fines, parking tickets and congestion charges that you incur
- Submit the vehicle for MOT testing at an approved garage when required by law
- Tell the finance company immediately if the vehicle is involved in an accident or sustains any damage
- If the vehicle is damaged and incapable of repair, or stolen and not recovered, you are responsible for settling the outstanding amount on the contract. In the event that your insurance does not cover the full amount required to settle with the finance company, you will have to pay the shortfall unless you have taken out Gap Insurance
- At the end of the contract, the vehicle should be returned in a condition relative to its age and mileage, according to the finance company’s Fair Wear & Tear policy, in order to avoid De-Hire Charges
What You Can & Can’t Do With Your Lease Car
- Travel abroad – you can usually take your lease car abroad on holiday or business, as long as you obtain prior written consent from the finance company
- Towing – this is allowed if the vehicle is suitable. If you did not order the vehicle complete with a towbar, you can usually have one professionally fitted as long as it is removed before the vehicle is returned
- Personalised Number Plates – most finance companies will allow you to put your cherished number on the vehicle, but you could lose it if you don’t remove it before the vehicle goes back
- Fitting different tyres or wheels – this is usually possible as long as they are appropriate for the vehicle and do not invalidate the warranty, but originals must be put back at the end of contract
- Fitting other equipment or accessories – possible but check with your finance company
- Sign writing – you are permitted to attach any easily removable signs, letters or advertisements to the vehicle for promotional purposes
- You cannot lend or sub-hire the vehicle to anyone
- The vehicle cannot be used for racing, rallying or any form of competition
- The vehicle cannot be used for driving tuition
- You cannot allow your lease car to be driven by anyone who does not hold a full driving license or who is not comprehensively insured to drive the vehicle
These are the dos and don’ts that apply generally in the Car Leasing industry, but it’s always best to check things with your finance company.
The idea is that nothing you do should leave any visible damage to the vehicle when removed, and the vehicle should be put back to its original specifications before it is returned at the end of contract. Remember that you may be charged for any necessary repair work or reconditioning that the finance company considers necessary, under the terms of their Fair Wear and Tear policy.
As I have said, the Car Leasing contract is a legally binding agreement. So, if you want to break a car lease and return the car early, you are likely to face Early Termination charges which, depending on how much of the lease is still to run, could be costly.
There are really only two ways to get out of your Car Lease Contract early, and they are either to find someone willing to take over the payments on your car lease agreement, or hand the car back to the finance company and pay the Early Termination fee.
If you can’t find a suitable person to take over your Car Lease, it may be tempting to simply hand back the car and stop making the monthly payments. Under no circumstances should you do this, as the finance company will seek to recoup its losses, may sue for breach of contract, and have you pursued by a debt collection agency, all of which will severely limit your chances of getting car credit in the future.
You might find it useful to check out my blog post about “How To Get Out Of Your Car Lease Contract”.
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