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

  • Decide whether to rent a car or have the option to buy it
  • Lease deals can include servicing and tyres in cost
  • PCP deals may have extras like free fuel thrown in 
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One of the joys of Personal Contract Purchase finance is that it can get you the keys to a brand new car every few years for a low monthly payment – while reserving the option to buy the car outright at the end of the PCP contract.

If you like the car, all you have to do is make the large optional final payment and the keys are forever yours. This could be a convenient arrangement if you want to own the car, as you don't have to go out and find a new one.

Alternatively, if you like to change your car every few years, you can go one step further and bypass the choice to buy the car completely by opting for Personal Contract Hire, also known as leasing.

It works in a similar way to PCP, with drivers making an initial payment followed by a series of monthly payments; at the end of the lease, which is basically a long-term rental contract, however, you simply hand the keys back, with no option to buy the car.

However, unlike PCP deals – which often involve slightly higher monthly payments in an effort to build equity that you can put towards the deposit on your next car, reducing future monthly payments – leasing revolves around offering the lowest possible monthly payments. Consequently, if you find a good deal, leasing can be a great way to further shrink your monthly bills.

If you like the sound of leasing, check out the Parkers leasing search tool to take your pick of the best deals from Parkers' leasing partner, Zen Auto.*

Leasing pros:

  • Affordable, fixed monthly payments
  • Desirable cars can be more affordable
  • Lower payments than PCP in many 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
  • Not all manufacturers offer it, making it harder to get quotes
  • Strict mileage limits and wear and tear charges apply
  • May cost much more to cancel compared with PCP
  • PCP deals can sometimes undercut lease offers

Lower monthly costs: the real benefit of leasing

Leasing can be the cheapest way into a brand new car, thanks to low, fixed monthly payments – in many cases lease deals are less costly than PCP finance alternatives and often benefit further from a smaller initial payment. This means that choosing a lease could secure you a posher model within budget, or you could simply spend less each month.

While PCP finance is typically offered by manufacturers, leasing is often available direct through leasing companies that may buy in bulk and pass the savings on. This means that attractive deals are often available if you do your homework.

Car dealership

Bear in mind, however, that some manufacturers are keener to promote PCP finance than leasing, with many companies seeing PCP as a surefire way to get the customer back in a few years' time, whereas those after lease deals might simply flit from leasing company to leasng company. As a result, dealers may offer strong value PCP offers, while the best lease deals are often available from leasing companies.

As a result, if you aren't concerned about the option to own the car at the end of the contract, it's worth drawing up a shortlist of your favourite cars and searching for the best deals online – allowing you to find the car and type of finance that best suits your specific needs.

Leasing can include maintenance packages

Lease deals often allow you to include servicing and even tyres in the monthly cost – making it easy to budget. Additionally, leasing includes breakdown cover and VED car tax, which in the case of higher-emission models could save you hundreds of pounds every year compared with an equivalent PCP offering – where you would otherwise have to add tax costs on top.

Looking to finance a new car? Check out the best leasing and finance deals available now:

Muddying the water, though, is the fact that you can now also add servicing packs to many PCP deals – though it is still much easier to find a lease deal with maintenance included. A few manufacturers now offer “packaged” PCP deals that include everything from insurance to road tax, too, while some manufacturers throw in servicing for free with other offers.

No ownership option: you must hand the car back

While PCP schemes allow you to make the car yours with a large optional final payment, a leasing set-up requires you to return the car at the end of the contract. That means that – once the contract finishes – you either need to find money for another finance deposit, get some cash together to buy a car outright, or simply walk away without a vehicle. Consequently, 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.

So, if your situation changes during the contract, you cannot change your mind and buy the car at the end with leasing. 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. 

Handing back lease car

Additionally, should you exceed the agreed mileage limit with PCH, you are likely to be stung with excess mileage charges – with further fees if you return the car with any damage. While these charges apply to PCP schemes as well, you can potentially get around them by negotiating with the dealer you purchase your next car from to effectively take it in part exchange – with the dealer paying off the finance, which may prove cheaper overall. Alternatively with PCP, you could make the optional final payment to buy the car if the mileage and condition don’t bother you.

It’s also much more difficult to cancel a leasing contract than a PCP deal. With leasing you may have to pay the monthly costs in full if you need to return the car early, though in some cases you may be able to negotiate a reduced cost if you encounter financial problems or the car is no longer suitable. Should you need to hand the car on PCP back early, provided you’ve already paid more than half of the total balance due, you can simply return the keys with nothing more to pay,

PCP offers greater flexibility

Leasing may sound like the most affordable way to get the keys to a new car, and in many cases it is, but the best PCP deals offer similar – sometimes lower – monthly payments. That means that, to be sure you're getting the best deal, it's worth comparing leasing and PCP offers to see which suits you best.

PCP finance

If you have any desire to own the car at the end of the contract then you'll want to opt for a PCP scheme, as this will allow you to take ownership if you don't want to move into another finance scheme. Similarly, if you're concerned that you might need to return the car early or be unable to afford it if your circumstances change, PCP gives you a level of added protection.

Car leasing or PCP - which is best for me?

Want the lowest monthly payments for your next car, with a choice of desirable cars for an affordable cost and don't feel the need to own it at the end of the contract? Personal leasing is for you, as you can typically find affordable initial payments and low monthly bills on popular cars.

Like to keep your options open and potentially own the car at the end of the contract? You want PCP finance, as it will let you decide whether you want to buy the car or hand it back at the end of the contract.  

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

*Deals are correct at time of publication. Everyone’s financial circumstances are different and credit is not always available – Parkers cannot recommend a deal for you specifically. These deals are indicative examples of some packages available this week. Bauer Consumer Media Limited is an appointed representative of ZenAuto Limited for the broking of regulated hire agreements. ZenAuto Limited is authorised and regulated by the Financial Conduct Authority. ZenAuto Limited's registered office is Number One, Great Exhibition Way, Kirkstall Forge, Leeds LS5 3BF. ZenAuto Limited's company registration number is 10967345. ZenAuto is the trading name of ZenAuto Limited. Terms, conditions and exclusions apply.