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

Individual TV episodes, scooters and top-of-the-range smartphones. You can pretty much rent whatever you like in 2022. But should you lease or buy a car?

Leasing is very similar to renting. Stump up an initial payment (sometimes referred to as a deposit) , pay your monthlies and before you know it the contract is up and you need a new car. There’s no option to buy.

Buying a car outright might seem a bit old-school now. But it still makes an awful lot of sense for some people. There are three main ways to buy, assuming you’re not paying with cash.

A bank loan is the simplest. Go online or in-store, take out an agreement and pay it back. You own the car from day one.

Personal Contract Purchase (PCP) is the most popular choice of car finance in the UK. Pay a deposit (no-deposit deals are available), cough up the monthly payments and when the contract is up you’ll be left with a choice. You can buy the car outright with a balloon payment or get a new deal.

Hire Purchase (HP) is simpler than PCP. It breaks the cost of a car into a deposit and a series of monthly payments. When you’ve paid the contract the car is yours.

>> Search for car leasing deals

Lease vs buy a car: ownership

Ownership itself is pretty easy to understand.

Cash – your cash, your car.

>> Cash vs finance

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 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.

Pros and cons of leasing a car

Pros and cons of leasing a car

Leasing pros:

> Usually the cheapest monthly payment
> 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:

> No option to own
> Not all car manufacturers offer leasing (*see below)
> 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
> Not sensible if you plan to change car every few years
> Best manufacturer deals based on finance
> While you can sell, you may lose out on money

Lease vs finance car

Lease Finance
Deposit required ✔ (Some subscription services offer no deposit options)
Fixed monthly payments
Mileage limits
Option to buy the car
Cancel contract after paying 50%
Change cars regularly

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 HP agreement because you’re basically renting the car.

Leasing costs

*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.

For instance, 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.

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.

Car finance additional fees

Both leasing and PCP, but not HP, will restrict the number of miles you can cover. These typically range from 6,000-12,000. 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.

Is it better to 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.

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

>> 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 finance and leasing offers

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