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Car leasing in England

I so infrequently write on expat-related topics lately that a chance visitor to my blog may be turned off by the preponderance of family news and assorted filler stuff. To rectify that just a bit, let me spend a few minutes on something that I did not get into much detail in the past: Specifics of an auto lease in England.

Actually, when I used the word “lease” to describe the financial arrangement I was seeking, every single dealer I spoke to disabused me of the notion that such an option existed. What we do here in England is called PHP, they said, “Purchase-Hire Plan”. When I inquired about specifics, the deal looked an amalgamation of plain financing and lease rolled into one.

You have a contract that stipulates X number of monthly payments, at the end of which the car has a residual value expressed in the form of a “final payment”. The total value of the car is whatever you agree on the price, plus various fees and the interest on the financed portion of it. When the financing period is up, your two basic choices are either to pay the final lump sum and gain continuous possession of the vehicle or to return the vehicle to whatever agency your financing company specifies.

That looks very much like a good old lease, except for the fact that nothing constrains you from selling the car, if you so wish, at any point during your agreement. You will, of course, have to pay off to close your financing deal upon such sale, but that will not be a straight “remaining balance” payment, but rather a pre-set sum specified in your contract, which gets reduced every quarter of the financed period (making it awfully uneconomical to pay the contract off towards the end of each quarter).

You can, of course, simply pay the same “early settlement” amount at any time during your financed period if you so choose, for whatever reason, and keep the car.

The most unusual feature of this type of contract is this: Once you paid off half of the contract value, you can voluntary terminate the contract and return the car with no additional money owed to the financing company. And if you choose to terminate the contract earlier than that, you have to pay whatever remains of your monthly payments up to the half of the value of the contract.

Which is a pretty good deal, whether you got tired of the car earlier than expected or, like us, have to give up the car for reasons of relocating abroad. We were three months short of the half-way point with our X3, but paying that off was less than I had had to pay some stranger to take over my lease in the US when I had been moving to England (and paying off the remaining contract amount to the financing company then was entirely out of the question).

One important note, though. It’s half of the contract value (including the final “residual value” payment), not half the duration of the contract. We were somewhat deceived into believing in the latter (in other words, that we could return the car with no financial obligations after 18 months of our 36-month contract) with the dealer repeatedly assuring us that “you can just return the car when half of the contract is up“, and did not read the fine print well enough to realize that the actual get-out-of-lease-free point came only after 28 months. I can’t imagine that it would change our decisions much if we were properly attuned to that, given that we did not have a specific time horizon for getting back to the States when we got this car, but it may make a difference in other situations. Unfortunately, I do not have any knowledge whether a shorter-term PHP is possible; 36 months was the standard offer on hand everywhere I looked.

The paperwork for early termination (a phone call to the company, a letter with directions they send you, a documentation pack you need to send back to them, including any money owed, another letter they send you advising that the contract is being terminated) can be initiated at any time during your monthly pay cycle, but needs to conclude prior to your next scheduled monthly payment. It takes five-to-seven business days, including the time for letters to travel through the Royal Mail system, after which you need to call the specified collection agency to arrange for the car being picked up literally from your driveway. On the following day, if you wish.

I completed all of the paperwork stuff last week, but since I consider the car paid through my next payment, I might as well keep it until the last possible moment. The collection is scheduled for the day prior to our departure for our last continental holidays.


  1. Brian Greenberg

    Just out of curiosity (since I have no plans to procure a car in England any time soon): who owns the car during the PHP? In the US, the owner of the leased car is the financing company (my registration has the finance company listed as the owner, and when I had a fender-bender with my leased car, the insurance company dealt with them, and cc:ed me on documentation). From an admittedly American perspective, it strikes me as odd that you can sell something that isn’t yours, or that you make monthly payments on something that is…

  2. Ilya

    Yes, exactly, this is pretty confusing. I own the car. Legal ownership and financial obligations get sort of separated in this scenario. The registration documents list me as an owner, and any insurance issues are to be dealt by me directly. If I choose to return the car at the end of the financed period, the ownership then is transferred to the finance company in the same way as it would be during a regular sale.

    The arrangement is akin to taking an unsecured personal loan to pay for the car. With a provision of using the vehicle itself for settlement of the final payment.

  3. Brian Greenberg

    That’s really interesting. So, basically, they’re giving you the car under the condition that you take the (unsecured) loan.

    Defaults must be awfully interesting. I bet there’s a significant number of people/cars each year that just go missing, with no payments and no sign of the person (or the car) to be found. Am I right?

  4. Ilya

    I don’t have the statistics, Brian, but observationally, I do not feel the problem would be much greater than it is in America. I do not think the risk of default or the ability of the finance company to recoup losses is affected much by the unsecured nature of the loan here in England. I have to do some additional research to be able to intelligently explain it, though.

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