Should you lease or buy a car?

  • Leasing generally provides cheapest monthly figure 
  • Buying usually better long term
  • Different finance options bring different levels of choice

Lease or buy a car

In 2021 consumers can rent pretty much anything. Phones, music, TV series - they're all fair game. And so are cars. But should you lease or buy a car?

Leasing, often called Personal Contract Hire (PCH), works much like a long-term rental. Pay an initial payment and your fixed monthly instalments and before you know it, it's time for the finance company to pick up the car.

Buying a car outright is more complex. Assuming you're not buying a car in cash, there are three main types of finance you can use to buy a car.

First up - the bank loan. Take out agreement, pay it back, simple. You own the car right away.

Personal Contract Purchase (PCP) is the most popular car-specific type of finance. You usually pay a deposit (although no-deposit deals are out there), cough up the monthly instalments, then you have the choice to buy the car outright at the end or not.

Hire Purchase (HP) allows you to split the cost of a car into a deposit and a series of monthly payments. When you've paid off your contract, you own the car.

Leasing deals offer the lowest monthly payments. Whereas PCP and HP are more per month, but can work out cheaper in the long-run.

Keep scrolling for a more in-depth look.

>> Search for car leasing deals

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Pros and cons of leasing a car

Leasing pros:

> Usually the cheapest way to drive a new car
> Fixed monthly payments
> Makes desirable cars more affordable
> Road tax and roadside assistance often included
> Servicing, maintenance, and insurance can be thrown in

Leasing cons:

> Effectively rental - no option to own
> Not all car manufacturers offer leasing
> Strict mileage limits and wear and tear charges
> Can cost much more to cancel compared with PCP
> Can't modify car

Pros and cons of buying a car

Buying pros:

> No annual mileage limits
> No damage fees
> Can modify without permission
> Often better value long term
> Can sell the car if you need money

Buying cons:

> Depreciation
> Big initial outlay
> No new car every few years
> Best manufacturer deals based on finance
> While you can sell, you may lose out on money

Leasing offers the cheapest monthly cost

Leasing is often the cheapest way to get a new car on your driveway. In most cases, the monthly payment is cheaper than a PCP agreement payment, a bank loan, or a Hire Purchase (HP) agreement because you're just renting the car.

Leasing offers the cheapest monthly cost

Most manufacturers offer cars with a leasing agreement nowadays, but some still don't. This explains why if you're looking for leasing deals online, you'll come across a lot of leasing companies. These companies tend to bulk buy cars from manufacturers and lease them out to customers.

Don't think leasing restricts what type of car you can buy though. You can find leasing deals on petrol, diesel, hybrid, and electric cars.

Manufacturer-backed finance deals

If you want to own a car, the best deals for both PCP and HP mostly come directly from manufacturers. Car makers offer all sorts of enticing options if you take out finance with them.

0% APR deals are common. With these, you only pay the sticker price of the car with no interest rates. Deposit contributions are also offered - this in essence is cash money off the deposit of the car.

Most car firms want your money in house as it's easy to keep tabs on you, and even easier to get you back in the doors of showrooms once the deals are done.

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

>> Best cars for £90 per month
>> Best cars for £100 per month
>> Best cars for £150 per month
>> Best cars for £200 per month
>> Best cars for £300 per month
>> Best cars for £400 per month
>> Best cars for £500 per month
>> Deal Watch: top cash, finance and leasing offers

Lease or buy a car: ownership

Ownership itself is pretty easy to understand.

Cash - your cash, your car.

Bank loan - you own the car and you pay the bank back.

PCP - the manufacturer owns the car. If you pay the optional final payment (often referred to as the balloon payment), it becomes yours.

HP - the manufacturer owns the car until you pay your last payment.

Leasing - the leasing company owns the car.

PCP deals allow you to wait around and figure out what you want to do until that final payment is due, while with HP, you commit to buying. With leasing, you commit to not buying.

Lease or buy a car

Car finance: additional fees 

When you buy a car with cash or with a bank loan, the car is yours. There are no additional fees to pay.

When you finance a car you don't own the car (yet). So car finance deals come with limits in place to protect the car's value.

Both leasing and PCP, but not HP, will restrict the number of miles you can cover. These typically range from 6,000-12,000 miles. You'll get charged a fee for every mile you do over that, typically less than 10p per mile. Damage fees also apply.

Cancelling a leasing contract is much harder than cancelling a PCP deal. With leasing deals, you typically 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.

If you've paid more than half of the total balance on a PCP deal, you can simply end your contract by handing the keys back with nothing more to pay.

Should I lease or buy a car?

In short, if you want what is likely to be the best-value deal in the long term, and you don't mind keeping one car for quite a few years, buying is best.

If you want the lowest monthly payments and a contract with the lowest number of months, but don't strictly care about the best value over time, leasing is most likely best for you.

Further reading

>> Car leasing with bad credit scores
>> Car leasing with no deposit
>> Best car leasing deals for young drivers
>> Why car manufacturers lease cars they don't make