Car leasing vs car finance: to own or not to own?

  • Decide whether to rent your car or buy it outright
  • Lease deals can include maintenance and insurance
  • PCP offerings often feature discounts or extras thrown in 
  • Decide whether to rent your car or buy it outright
  • Lease deals can include maintenance and insurance
  • PCP offerings often feature discounts or extras thrown in 
Find out how much you can afford to borrow by trying out our car finance tool.

One of the joys of PCP car finance is that it can get you into a brand new car every few years – while giving you the option to buy the car outright at the end of the contract. 

This gives you maximum convenience and banishes the headaches associated with having to sell on a used model. However, you can go one step further and bypass the option to buy the car completely, by choosing to lease.

Personal Contract Hire leasing – PCH – works in a similar way to PCP, with drivers paying an initial deposit followed by monthly payments. However, you effectively rent the car, as you never get the option to buy it and simply hand the keys back when the contract ends. 

Find out how much you can afford to borrow by trying out our car finance tool.

Leasing pros:

·         Cost-effective way to drive a brand new car

·         Affordable, fixed monthly payments

·         Lower deposit than PCP deals in some cases

·         Road tax and roadside assistance included

·         Servicing and maintenance can be thrown in

Leasing cons:

·         No option to own the car – you effectively rent it

·         Lacks the flexibility of PCP – you must give the car back

·         Strict mileage limits and wear and tear charges apply

·         May cost much more to cancel compared with PCP

·         Manufacturer PCP deals often include more incentives

Lower monthly costs: the real benefit of leasing

Leasing can be the cheapest way into a brand new car, with low, fixed monthly payments – in many cases lower than PCP finance alternatives, and often with a smaller deposit. Consequently, choosing PCH could secure you a posher model within budget or you could simply spend less each month.

Leasing could save you around £23 per month on a BMW 318d M Sport compared with PCP. That figure rises to £31 per month on the BMW 520d M Sport. Choose the BMW i3, however, and PCP and PCH costs are identical.* 

Audi, meanwhile, will charge you the same for PCH and PCP, though the deposit is much smaller for the PCH option. It’s the opposite story across the Ford range, however, with a larger deposit needed for PCH.*

Leasing can include maintenance packages

PCH often allows you to include servicing and even tyres in the monthly cost – making it easy to budget for car costs. Additionally, leasing includes breakdown cover and VED car tax, which in the case of higher-emission models could save you up to £515 per year compared with an equivalent PCP offering.

Muddying the water, though, you can now also add servicing packs to many PCP deals. “Packaged” offers can include everything from insurance to road tax, while some manufacturers throw in servicing for free with some deals.

No ownership option: you must hand the car back

While PCP schemes allow you to make the car yours with an optional final payment, with a PCH set-up you have to return the car at the end of the contract, leaving you with nothing to show for the payments. This means that if you’re not sure whether you want to own the car at the end of the contract, you’ll be better served by a PCP plan.

If your situation changes during the term of the contract, you cannot change your mind and buy the car with PCH. This means that unless you have enough cash to buy a suitable new or second hand car, you’ll be forced to take out another finance plan. 

Additionally, should you exceed the agreed mileage limit with PCH you are likely to be stung with excess mileage charges, with additional fees if you return the car with any damage. While these charges apply to PCP schemes too, you can’t dodge them by making the optional final payment to buy the car with leasing – provided the mileage or condition of the car don’t bother you.

It’s also much more difficult to cancel a leasing contract than a PCP deal. With PCH you may have to pay the leasing costs in full if you need to return the car early. Should you need to hand the car back early with PCP you can simply return the keys with nothing more to pay if you’ve already paid more than half of the total balance due.

PCP offers greater flexibility and large discounts

Leasing may sound like the most affordable way to get the keys to a new car, but in many cases PCP deals are a more attractive proposition. The best PCP deals offer similar – sometimes even lower – monthly payments, with low APR rates and sometimes extras including free servicing thrown in.

Though you may not plan to buy the car at the end of the contract, PCP deals allow you to take ownership if you change your mind, or simply return the car if your circumstances change. This added security and flexibility makes them more suitable for many drivers.

Want to find out more about car finance? Take a look at the stories below:

Top cars for £200 per month

Eight signs of a great car finance deal

Top tips for finding cheap car finance

Great value finance offers on outgoing cars

The seven deadly sins of car finance

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