Estimate your monthly car lease (personal contract hire) payment, including depreciation, finance charge, and VAT.
Rates as of Q2 2025 (example)
A car lease calculator estimates your monthly payment for leasing a vehicle (sometimes called Personal Contract Hire or PCH in the UK), based on the vehicle's price, an initial rental (down payment), the residual value at the end of the lease, the finance rate, and VAT. Unlike a car loan, leasing means you don't own the vehicle — you pay for the use of it and its depreciation over the lease term, then return it at the end.
A lease payment is made up of two main components: depreciation (the difference between the adjusted vehicle price and its residual value, spread over the lease term) and a finance charge (calculated on the average of the adjusted price and residual value). VAT is then applied to the total of these two components.
Formula: Adjusted Price = Vehicle Price − Initial Rental. Residual Value = Vehicle Price × (Residual % ÷ 100). Depreciation = Adjusted Price − Residual Value. Monthly Depreciation = Depreciation ÷ Lease Term (months). Monthly Finance Charge = (Adjusted Price + Residual Value) × Finance Rate Factor. Total Monthly Payment = (Monthly Depreciation + Monthly Finance Charge) × (1 + VAT Rate ÷ 100).
Example: For a £28,000 vehicle with a £2,000 initial rental, a 55% residual value (£15,400), a 5% finance rate (example rate — enter your actual offered rate) over a 36-month term, and 20% VAT, the monthly depreciation is about £294, the monthly finance charge is about £86, and after adding 20% VAT, the total monthly payment is roughly £457. (Note: all figures in this example are for illustration purposes only and do not represent a lease offer.)
Personal Contract Hire (PCH) is a popular way to drive a new car in the UK without the commitment of ownership — you pay a fixed monthly amount for an agreed term and mileage allowance, then return the car at the end with no further obligations (assuming you've stayed within the mileage limit and the car is in acceptable condition; exceeding mileage or excessive wear typically incurs extra charges). VAT is charged on lease payments in the UK — for business users, a portion of the VAT (commonly up to 50% for cars with any private use) may be reclaimable, which can make leasing more cost-effective for businesses than for private individuals. The residual value — the leasing company's estimate of the car's worth at lease end — has a major impact on monthly payments: cars that hold their value well (high residual value) tend to have lower lease payments than similarly priced cars that depreciate quickly.
Residual value is the leasing company's estimate of what the car will be worth at the end of the lease term, expressed as a percentage of its original price. A higher residual value means less depreciation needs to be covered by your monthly payments, generally resulting in lower lease payments for the same vehicle price.
No. With Personal Contract Hire (PCH), you return the vehicle at the end of the term with no option to buy it. This differs from Personal Contract Purchase (PCP) or Hire Purchase (HP), which include an option (or obligation) to purchase the vehicle at the end of the agreement.
Possibly, if you're a business user. Businesses can often reclaim up to 50% of the VAT on lease payments for cars with any private use, or potentially 100% for vehicles used exclusively for business. Private individuals generally cannot reclaim VAT. Check with an accountant for your specific situation.
Most lease agreements specify an annual mileage allowance. Exceeding this allowance typically results in an excess mileage charge (a fixed amount per additional mile) at the end of the lease. If you're unsure of your annual mileage, consider choosing a slightly higher allowance to avoid these charges.
No — the default is an example only. Finance rates for car leases vary by leasing company, vehicle, term, and your credit profile. Use the actual rate from a lease quote for an accurate monthly payment estimate.
An initial rental is an upfront payment made at the start of a lease, often shown as a multiple of the monthly payment (e.g., "9 months upfront"). A larger initial rental reduces the amount being depreciated and financed over the lease term, which lowers the regular monthly payments.
Disclaimer: The information, rates, and figures provided on this page are for educational and illustrative purposes only and do not constitute a lease offer or financial advice. The default finance rate and VAT rate are sample values and may not reflect current rates from any specific leasing company. Lease terms, mileage allowances, excess charges, and VAT treatment vary by provider and depend on your individual circumstances. Always obtain a personalised quote from a leasing company and consult a qualified financial adviser or accountant before entering into a lease agreement.