Short-term car leasing explained

If you like the idea of driving a new car but don't have the budget to buy one outright or to put towards a deposit, then it may be worth looking at electric car leasing!

In short, a short-term lease is an easy and straightforward way of driving new cars.

There are some important things to bear in mind if you’re considering this way of getting in the driver's seat of a new car. This guide will go through everything that you need to know.

What is a short-term car lease?

First things first - a car lease is a rental agreement (also known as Personal Contract Hire) that allows you to use a vehicle for a certain period of time, usually two to four years. Some lease providers in recent years have launched shorter leases to meet changes in customer demand.

Today, motorists can benefit from committing to much shorter lease agreements, which are generally less than 12 months. In fact, the shortest time you can lease a car is through 1-month flexible lease deals which are now more widely available on the British market.

With a lease, you never actually own the car, and the monthly payments do not contribute to you owning the car eventually. There's no "balloon" payment at the end of the agreement which would allow you to buy the car (like you can do with a Personal Contract Purchase agreement). When the lease period ends, the car is returned to the provider.

Traditional long-term lease contracts typically require you to cover servicing and maintenance costs separately. For short term leases, these costs are sometimes covered by an add-on pack or included in the agreement, effectively making it a form of car subscription.

The benefits

There are a number of reasons why you should consider taking out a short-term lease:

• Far lower upfront cost than buying.
• Cheaper than a daily rental.
• Allows you to try out a new car every month, or every other month.
• You can get a new car when you need it most (for example, when your other car needs repairs).
• You're not tied into a long-term contract, which generally gives you more flexibility.

The disadvantages

Here are the negatives worth thinking about before you sign up:

• Short leases are generally more expensive than conventional leasing.
• The selection of cars may not be the best.
• Some providers offer smaller mileage allowances (additional mileage can be costly).
• There aren't many providers in the UK who offer it and your best alternative is a car subscription.
• The lease deal you get largely depends on your credit score and history.

Why would someone lease a car for less than one year?

Wondering if a short-term car lease is a good idea? They are designed for people who don't plan on keeping their vehicle for long periods. This is especially true if you know your personal circumstances will change (for instance, if you move to London and you want to avoid driving).

Short-term car leases are also great for those who want to drive a variety of vehicles and don't really want to commit to one. This the reason that many drivers turn towards electric car salary sacrifice schemes too!

How does a short-term car lease work?

Leasing a car works much like an extended rental. You make regular monthly payments over the course of your agreement.

The amount of money you pay will depend on the car, desired pre-agreed mileage, and how long you want to lease it. The monthly payments also take into account the vehicle's depreciation during your lease period.

Also, usually, the longer the lease period, the cheaper the monthly repayments are likely to be.

Once the lease agreement ends, you either swap your car for a different one, or return it to your provider.

What is included in a short-term car lease?

Under most leasing agreements, you are responsible for paying the cost of any repairs to your car during the lease period. Same for regular maintenance - a full car service can cost between £100 and £1000 depending on the condition of your vehicle and any repairs that may be needed.

So-called "maintenance" packages exist and can be added to your monthly payment. These usually include:

• Scheduled vehicle servicing
• Yearly MOT
• Car consumables such as bulbs, batteries, belts, wiper blades etc
• Mechanical and electrical repairs, parts and labour
• Roadside assistance

This is probably the biggest difference between a short-term car lease and a car subscription. All car subscription providers simplify the above and offer it as standard so you have one, an all-inclusive payment that covers all costs.

What are the alternatives?

Short-term car leasing is a great option for those who want the flexibility of driving new cars regularly but don’t want to commit to something long-term. However, there are other options available that offer similar benefits.

Car subscription

A car subscription is a new way of car ownership that enables you to enjoy the latest models without having to worry about maintenance, insurance and depreciation.

It’s very similar to short-term leasing but most providers include all costs (tax, insurance, servicing, maintenance, breakdown cover etc) as standard into one monthly payment. See the best car subscription providers in the UK. You can also read our in-depth car subscription vs leasing guide.

A cheap used car

Buying a cheap used car outright can sometimes be the best option. You won't get the latest and greatest the automotive market has to offer, but it can be an easy way of finding a reliable car. Especially if you don't use your car often. You can always sell the car and get some of your hard-earned cash back.

Car sharing schemes

If you need access to a car only occasionally, then Hiyacar or Zipcar might be a better option than owning your own vehicle. This could work out more cost-effective, especially if your monthly mileage is low.

Some car-sharing services offer access to electric cars, which can keep your running costs down; however, such services are prevalent in cities and may be hard to find if you live away from urban areas.

What cars can I lease short-term?

A short-term lease will let you enjoy driving whatever vehicle floats your boat—and then return it at the end of your leasing term.

You can lease many cars for usually £400 to upwards of £1000 a month. And you will have access to some of the latest EV models like Polestar 2 or Fiat 500e.

On the cheaper side, some of the best lease cars you can get for under £500 include:

• Volkswagen Polo
• Volkswagen Up!
• Vauxhall Corsa
• Toyota Yaris
• Seat Arona
• Peugeot 308

If you don’t want to buy a car, leasing is usually better. If you might want to own the car in the future, PCP financing is recommended.

Getting a short-term lease with bad credit

There's no question about how hard it is to try to secure financing if you have bad credit (or even no past credit history). Bad credit history means that companies view your history negatively and therefore may be reluctant to lend you money or offer certain credit services.

While there are ways to improve your credit score, that takes time and may not work for someone who needs a car immediately.

If you want a short-term lease, you can't avoid getting credit checked. But don't fret - the average credit score in the UK is 797 according to Experian which puts most people into their "Fair" bracket.

Generally speaking, if you have a low credit score and poor credit history, you should expect more expensive lease deals. However, due to the nature of short leases, it may be easier to get a car than if you apply for a more conventional (and expensive) 4-year lease.