Electric car leasing has become one of the most popular ways to drive an EV in the UK. Rather than buying a car outright or taking on a finance agreement with a balloon payment, you pay a fixed monthly amount to use a brand-new electric car for an agreed period, then hand it back at the end. No depreciation risk. No resale hassle.
But leasing has real costs and conditions that can catch you out if you go in without understanding how it works. This guide covers exactly how Personal Contract Hire (PCH) operates, what the full cost looks like, and what to look out for before you sign.
Key Takeaways
- Personal Contract Hire (PCH) is the most common form of personal electric car leasing in the UK. You pay a fixed monthly rental, drive the car for the agreed term, then hand it back.
- The monthly cost is determined by four factors: the car’s list price, the length of the contract, your agreed annual mileage, and your upfront initial rental.
- Road tax is included in most leases. Insurance, charging costs, and any maintenance beyond a maintenance package add-on are your responsibility unless specifically included.
- Excess mileage charges can significantly increase your total cost. Calculate your expected mileage honestly before agreeing a contract.
- If you are employed and your employer offers a scheme, salary sacrifice can be significantly cheaper than personal leasing because payments come from pre-tax salary. See our salary sacrifice electric car guide for a direct comparison.
What is Personal Contract Hire?
Personal Contract Hire (PCH) is a long-term car rental. You agree a contract, typically lasting 24 to 48 months, at a set annual mileage. You pay an initial rental upfront (usually equivalent to one to nine monthly payments), then a fixed monthly amount for the rest of the term. At the end, the car goes back to the leasing company.
You never own the car. There is no option to buy it at the end. This is the key distinction between PCH and Personal Contract Purchase (PCP), which includes a final balloon payment that lets you buy the car if you choose.
For electric vehicles, PCH has become particularly attractive because:
- New EV models are released frequently, meaning drivers can upgrade every few years without worrying about depreciation.
- The BIK tax advantage does not apply to PCH (that is unique to salary sacrifice and company cars), but the absence of a large purchase cost and depreciation risk is still a meaningful benefit.
- Manufacturers and leasing brokers often negotiate volume deals, so monthly rental figures can be lower than the equivalent finance cost of buying.
How is the monthly cost calculated?
The leasing company calculates your monthly payment based on how much value the car will lose during your contract. This is called depreciation.
If a car is worth £35,000 new and is expected to be worth £18,000 after three years at 10,000 miles per year, the leasing company needs to recover roughly £17,000 in depreciation, plus their profit margin and finance costs, across your monthly payments.
Four variables control your monthly payment:
- The car’s list price — a more expensive car means higher monthly payments. Cars with strong residual values (which hold their price well) have lower monthly payments relative to their list price.
- Contract length — a 24-month contract typically costs more per month than a 48-month one, because the car depreciates faster in its early life.
- Annual mileage — higher mileage means more depreciation and higher payments.
- Initial rental — paying more upfront reduces your monthly cost. A 3-month initial rental lowers monthly payments compared to a 1-month initial rental.
What is included in a standard personal lease?
A standard PCH agreement includes:
- Use of the vehicle for the duration of the contract
- Road tax (Vehicle Excise Duty) for the full lease term
- The manufacturer’s standard warranty (so mechanical faults are covered as long as you are within the mileage and time limits)
Not included as standard:
- Insurance — you arrange your own fully comprehensive cover
- Servicing and maintenance — these can be added as a paid maintenance package from the leasing company
- Tyres — worn or damaged tyres are your cost unless you take a maintenance package that includes them
- Charging costs — you pay for electricity to charge the car
What is a maintenance package?
Most leasing companies offer an optional monthly maintenance package on top of the base rental. This typically covers:
- Scheduled servicing as per the manufacturer’s recommendations
- Replacement tyres (some packages specify a minimum tread depth before replacement is covered)
- MOT (if applicable within the lease term — most leases are under three years so the MOT exemption applies)
- Some glass or windscreen cover
Maintenance packages add to your monthly cost but give you certainty. For electric cars, servicing costs are generally lower than for petrol or diesel vehicles, so whether a maintenance package is worth the premium depends on the specific package cost.
Annual mileage: the most important number
Your agreed annual mileage is the single biggest factor to get right. If you exceed the agreed mileage, you pay excess mileage charges at the rate specified in your contract, typically stated in pence per mile.
Excess mileage charges can range widely depending on the vehicle and the leasing company. On a car with tight excess mileage costs, exceeding by even 3,000 miles over a three-year contract could add hundreds of pounds to your final bill.
Practical advice:
- Track your current annual mileage before agreeing a lease. Factor in any planned changes, such as a new job with a longer commute.
- It is usually cheaper to agree a higher mileage from the start (which modestly increases your monthly cost) than to pay excess charges at the end.
- Some leasing companies allow a one-time mileage adjustment during the contract, but terms vary.
Initial rental: what it means and whether to increase it
The initial rental is paid upfront before your first monthly rental. A 3-month initial rental means you pay three times your monthly payment at the start.
Increasing the initial rental reduces your monthly cost for the remainder of the lease. However, the initial rental is not refundable if the car is written off or stolen early in the contract. Most insurers pay out to the leasing company (which owns the car), and you would lose the upfront amount.
For this reason, gap insurance is worth considering if you pay a large initial rental. Gap insurance pays the difference between the insurance payout and the amount you have already paid out.
Condition at return
At the end of your lease, the car is inspected under British Vehicle Rental and Leasing Association (BVRLA) fair wear and tear standards. Damage beyond fair wear and tear results in charges.
Common return charges include:
- Scuffs and scratches beyond a defined size (typically 25mm)
- Kerbed alloy wheels
- Damage to the interior
- Missing items such as charging cables (for EVs) or spare keys
Tip: Keep the car in good condition throughout the lease, and have any minor repairs done before return. Leasing companies typically charge retail rates for repairs, which are higher than independent garage rates.
Electric car leasing vs salary sacrifice
If you are employed, salary sacrifice deserves serious consideration before you commit to a personal lease. Salary sacrifice lets you drive the same electric car but pay for it from your pre-tax salary. At a 40% tax rate, paying £400 per month through salary sacrifice costs you roughly £240 from take-home pay, compared to £400 from post-tax income on a personal lease.
The saving is real and significant, particularly for higher-rate taxpayers. The trade-off is that your gross salary is reduced, which can affect mortgage applications and some statutory payments. See our salary sacrifice electric car guide for the full comparison.
What to watch out for before signing
- Total cost of the contract — calculate monthly payments × number of months, then add the initial rental. This is what you are actually committing to.
- Early termination charges — most PCH agreements have significant early exit fees if you want to return the car before the end of the term.
- GAP insurance — if your upfront payment is large, consider whether you need cover for the gap between insurance payout and your investment.
- Mileage — set it realistically, not optimistically.
- Excess wear and tear — read the fair wear and tear guidelines your leasing company uses (BVRLA guidelines are the industry standard).
- Administration fees — some brokers add administration fees to the list price. Always check whether the quoted monthly cost includes VAT.
Frequently Asked Questions
Can I end a personal car lease early? Yes, but early termination charges apply in almost all cases. The exact charge depends on how far through the contract you are and the terms in your agreement. Most agreements charge between 50% and 100% of remaining rentals. Check the early termination clause before signing.
Does PCH affect my credit score? Most leasing companies run a credit check before approving a personal lease. The check leaves a record on your credit file. Missing monthly payments would affect your credit score. Making all payments on time has no specific positive impact, as PCH is not treated as a credit product in the same way as a loan.
Do I need to service the car even if I do not have a maintenance package? Yes. You are responsible for keeping the car maintained in accordance with the manufacturer’s schedule, even without a maintenance package. Failing to service the car can invalidate the manufacturer’s warranty and result in end-of-lease charges.
What happens if the car is recalled during my lease? Manufacturer recalls are handled by the manufacturer. You take the car to a dealership for the recall work at no cost to you. The leasing company cannot charge you for recall-related repairs.