Lease purchase Car finance renewal guide: when & how to switch

Headline - make your next move count

Understanding APR is not just about percentages - it is about what you will actually pay and when. This guide helps you decide the best moment to renew or switch.

Setting the scene

If your agreement end date is approaching, timing is everything. The final months decide whether you keep, refinance, or hand back and switch. Get clarity on settlement figures, balloon payments, mileage charges, and credit checks before you commit.

Who benefits from this guide

UK drivers on lease purchase, PCP, or personal lease who want predictable costs and minimal hassle. Ideal if you are six months from term end, considering an EV via salary sacrifice, or deciding whether to own outright, refinance, or start a fresh lease.

Key terms you will see

• Settlement figure - what it costs to end or refinance early.
• Balloon payment - the final sum on lease purchase that must be paid to own the car. Interest accrues on it throughout the term.
• Guaranteed Future Value (GFV) - the optional final payment on PCP to buy the car.
• Fair wear and tear - the industry standard for end-of-contract condition. Minor scratches and normal tyre wear are usually acceptable. Excess damage is chargeable.
• Annual mileage allowance - usually 5,000-30,000 miles on leases. Going over attracts per-mile fees.
• Salary sacrifice - a workplace scheme that can reduce the cost of an electric car via income tax and National Insurance savings.

Clarity on definitions reduces surprise charges and helps you negotiate with confidence.

Your choices at renewal time

PCP timing

• Best window: the final six months. This is when settlement figures are clearer and you can weigh trade-in value against the optional final payment.
• Why it matters: too early and valuations shift; too late and you may face rushed decisions or limited stock.

Lease purchase essentials

• Structure: deposit, monthly payments, compulsory balloon at the end. Interest applies across the term, including the balloon.
• Flexibility: you can settle early under Consumer Credit Act rules. Useful if market prices move in your favour.

Personal Contract Hire (PCH)

• Contract length: typically 2-5 years with a deposit and insurance required.
• Mileage: pre-set limits. Exceeding them triggers per-mile charges. No option to own the car.

Buy outright or via hire purchase

• Higher monthly cost than leasing, but long-term ownership and no mileage caps.

Quick comparison

What it could cost - and the risks

• Monthly payments: leasing often costs less per month because you pay for depreciation, not full value. Buying usually costs more each month but can be cheaper over many years if you keep the car.
• Mileage exposure: set realistic annual mileage. Underestimating can mean 8p-30p per excess mile depending on model.
• Condition charges: fair wear and tear covers everyday marks. Deep scratches, kerbed alloys, cracked screens, and below-minimum tyre tread usually incur fees.
• Balloon planning: lease purchase requires saving or refinancing the balloon. Interest applies across the term, so plan early.
• Market swings: used values can move. Strong values may favour trading in or selling; weaker values may favour handing back on PCP.

Small adjustments in mileage and term length often deliver the biggest savings.

Who is eligible - and what lenders look for

• Credit profile: leasing typically expects good to excellent credit, since the finance company holds asset risk. Expect a full credit check and affordability assessment.
• Income and employment: stable employment and verifiable income help. Self-employed drivers should have recent accounts or SA302s.
• Driving profile: choose a realistic mileage band. 5,000-30,000 miles per year is typical on leases.
• Vehicle use: personal or business. Business leasing can unlock VAT and corporation tax efficiencies for eligible companies.
• Insurance and maintenance: you will usually need comprehensive insurance. Maintenance packages can be built into PCH for predictable costs.

A clear path to renewal or switch

1. Check your end date and remaining payments.
2. Request a written settlement figure.
3. Confirm current mileage and expected return mileage.
4. Book a pre-return inspection for condition.
5. Compare PCP, lease purchase, PCH, and buying quotes.
6. Decide on balloon strategy or hand-back plan.
7. Apply, pass credit checks, agree delivery dates.
8. Return, collect, or part-exchange on the same day.

Pros, cons, and what to weigh up

• PCP: flexible, often low monthly cost, option to own. Watch mileage and condition fees if handing back.
• Lease purchase: predictable path to ownership with lower monthly cost via balloon. Requires discipline to fund the balloon.
• PCH: simple, often the lowest hassle. No ownership, mileage caps apply.
• Buying: full control and no mileage charges. Higher upfront or monthly costs.

Checks before you commit

• Timing: aim for the final six months on PCP to align settlement, valuations, and stock.
• Condition: fix obvious issues cost effectively before inspection.
• Mileage: adjust usage or pre-pay excess if cheaper.
• Total cost: include fees, delivery, maintenance, tyres, excess mileage, and potential early termination charges.
• Credit: know your score and reduce other debts if you can before applying.

Alternatives that might suit

• Extend your current agreement by a few months if available, to wait for stock or interest rate changes.
• Switch to salary sacrifice for an EV if your employer offers it. Tax advantages can reduce costs significantly for many taxpayers.
• Consider a nearly-new car on PCP if new car lead times are long.
• Use hire purchase for ownership without a balloon if you prefer stability.

Common questions answered

• When should I start renewal talks on PCP? Within the last six months. That is the sweet spot for settlement clarity and stock choice.
• Can I end a lease purchase early? Yes. Covered by the Consumer Credit Act, you can request early settlement. Check for interest and any fees.
• What happens at the end of PCH? The car is inspected against fair wear and tear, then collected. You can start a new lease or walk away.
• Do I need excellent credit? Strong credit helps, especially for leasing. Lenders assess affordability, employment stability, and credit history.
• How strict are mileage limits? You choose a band at the outset. Exceeding it triggers per-mile charges, so pick a realistic allowance.
• Are EVs cheaper on salary sacrifice? Often, yes. Tax and NI savings can make premium EVs more affordable compared with private leasing.
• Should I buy or lease? Leasing lowers monthly cost but has usage limits. Buying costs more monthly but suits long-term keepers without mileage worries.

What to do next

• Gather settlement, mileage, and condition details this week.
• Get like-for-like quotes across PCP, lease purchase, PCH, and buying.
• Model 3 terms: 24, 36, and 48 months with realistic mileage.
• If an EV interests you, ask HR about salary sacrifice.
• Ready to act? Speak to switcha for impartial options and a smooth handover.

Important note

This guide is for general information only and does not constitute financial advice. Always check your agreement, fees, and eligibility. Consider independent advice if you are unsure about affordability or suitability.