Guide

What is the 1.25% rule of leasing?

Updated October 2026 7 min read Performance & Prestige

The 1.25% rule says a lease is well priced when the monthly payment is no more than 1.25 per cent of the car’s list price — a tighter version of the 1.5 rule. It screens a single ratio, and it cannot see the term, the initial payment, the mileage allowance or what the payment includes.

What is the 1.25% rule?

Divide the monthly payment by the car’s list price. If the answer is 1.25 per cent or less, the rule says the agreement is good value. At a list price of eighty thousand pounds that is a thousand pounds a month; at a hundred and sixty thousand, two thousand.

It is the middle rung of a three-rung ladder that circulates as leasing folklore: 1 per cent for an unusually good deal, 1.25 per cent for a good one, 1.5 per cent as the ceiling. The arithmetic and the origins of the family are set out in the guide to the 1.5 rule.

This page is about something else: what that single number is built from, and the four large facts it is structurally incapable of noticing.

Can two agreements share a ratio and be nothing alike?

Easily. Both of these sit at exactly 1.25 per cent of the same list price.

Two agreements with an identical monthly-payment-to-list-price ratio, compared on the terms the ratio cannot see
	Agreement A	Agreement B
Ratio to list price	1.25%	1.25%
Term	36 months	3 months
Paid before the car arrives	Nine months’ worth	One month’s worth
Mileage included	8,000 miles a year — about 670 a month	1,000 miles a month
Getting the car to you	Collect it yourself	Delivered to your address
Committed to	Three years	Three months

The ratio says these are the same deal. They are not remotely the same deal, and which one is better depends entirely on facts about you that the ratio never asked for.

What is the percentage made of?

Three ingredients, in roughly this order of size.

The largest is depreciation: what the car is expected to be worth at the end of the term, subtracted from what it is worth now, divided by the months in between. The second is the cost of the money tied up in the vehicle for that period. The third is whatever else has been folded into the payment — delivery, collection, an allowance of miles, anything the supplier is absorbing.

Only the first two have anything to do with the car. The third is a bundling decision, and it is why two suppliers quoting the same vehicle can produce percentages that differ by a third without either of them being out of line.

A ratio that adds all three together and divides by list price cannot tell you which of the three moved.

What are the four things the ratio cannot see?

Term is the first and the biggest. Depreciation is front-loaded, so the first six months of a car’s life cost far more per month than the thirtieth to thirty-sixth. A short agreement will always show a higher percentage than a long one on the same car, and that is not a pricing signal.

The initial payment is the second. A profile with nine months up front reduces the monthly figure, and therefore the percentage, without reducing the money. The ratio rewards paying earlier.

The mileage allowance is the third. Miles cost money whether you buy them in the quote or afterwards, and a bigger allowance raises the monthly figure. On this test, the quote that will cost you less overall looks worse.

What is included is the fourth. Delivery to your door is a real cost being carried by someone. If it sits inside the payment the percentage rises; if it is invoiced separately the percentage falls and the total does not.

Does the rule survive being imported from another market?

Not cleanly. The rule circulates in a form that assumes the monthly figure and the list price are quoted on the same basis, and in the UK a personal lease is quoted with VAT included. A figure taken from a market that quotes before tax is a smaller number over the same car, so the percentage it produces is not comparable with a British one.

Comparing a UK quote against an imported benchmark therefore makes the UK quote look worse than it is, for reasons that have nothing to do with the agreement in front of you.

The fix is not to adjust the benchmark. It is to stop using a benchmark from another market at all, and compare UK quotes with UK quotes, on the same basis, over the same term.

Why does a short prestige lease read high on this test?

Because every factor above points the same way at once.

The minimum term is three months, which sits in the steepest part of the curve. The cars are expensive and depreciate in absolute terms accordingly. The payment includes 1,000 miles a month and delivery to an address you choose in mainland Britain, and it carries a minimum term you can realistically reach the end of.

Run the 1.25 per cent test against a supercar’s list price and it will fail, comprehensively. Run the honest test — what does this car cost me for the months I want it, all in, and what does it include — and you get an answer to a question you actually have.

What is a better test?

Four numbers, and they work across suppliers because they are facts rather than ratios.

Take the BMW X5. The minimum term is three months, so the total across the term is the monthly figure three times over, with the first of those three paid up front. The allowance is 1,000 miles a month, which is 3,000 miles across those three months. Divide the one by the other and you have the cost of a mile of included motoring, before you have compared anything to anything.

Now run the same four numbers on whatever you are weighing it against — total across the term, what is included, miles included, and what it costs to leave early. If one of the four is missing from a quote, that absence is the finding. A supplier who will not put the early-exit cost in writing has told you something the percentage never could.

So is the rule worth anything at all?

As a sorting tool, yes. If you are looking at a shortlist of similar cars on identical terms from the same supplier, the percentage will surface the odd one out faster than reading the quotes will.

As a verdict, no. It has no view on whether the term suits you, whether the mileage is enough, what happens if your circumstances change, or whether the car arrives at your door or waits at a compound. Those are the things that decide whether an agreement was a good idea, and not one of them appears in the sum.

Use it to raise a question. Do not use it to answer one.

Common questions

Is 1.25 per cent good, or just average?

In the version that circulates it is the “good deal” rung, with 1 per cent above it and 1.5 per cent as the ceiling. None of the three thresholds comes from a source you can check, so treat the ladder as a rough ordering rather than as grades.

Does the initial payment go into the sum?

Not in the rule as it is normally stated, which is one of its blind spots. A profile with more months up front lowers the monthly figure and improves the ratio while the total goes up. Compare initial payments as multiples of the monthly figure instead.

Does the rule work on a used or ex-demonstrator car?

Poorly. The sum needs a list price, and a car that is no longer new does not have one in the sense the rule assumes. Using the original list price understates the ratio; using the current value changes what you are measuring. Compare totals rather than percentages.

Where do I find a car’s list price?

The manufacturer publishes it, and for a specific car it is the list price of that specification rather than of the base model. On performance and prestige cars options move the figure substantially, which is part of why a percentage of list is a softer number here than elsewhere.

Do you price your leases to hit a percentage?

No. A monthly figure here reflects the vehicle, the three-month minimum term, the 1,000-mile monthly allowance and delivery to your address. On a car in our own fleet that figure is ours to confirm on enquiry; a car arranged through a partner is quoted on request, because we will not print a price nobody has confirmed.