Lease or buy a car: rent or keep?

  • Leasing generally provides cheapest monthly figure 
  • Buying usually better long term
  • Finance options that offer choice are available
Find out how much you can afford to borrow by trying out our car finance tool.

2020 Audi A1

At a time where people no longer just rent homes, but their phones, and even their music, it makes sense that renting a car is fast becoming a hugely popular way of getting around.

Leasing (often called Personal Contract Hire) is essentially a form of long-term rental. You pay an initial payment, your fixed monthly instalments, and then it's time to hand the car back.

Buying a car is a bit more complex, assuming you're not doing it in cash.

There are three main types of finance used to buy a car. First up, the simple bank loan. Take out a loan, pay it back, own the car - simple.

Next up is Hire Purchase (HP). With this, you split the total cost of the car into a deposit and a series of monthly payments. At the end, you own the car.

The most popular type is Personal Contract Purchase (PCP). With this you normally pay a deposit (although no deposit PCP deals are available), cough up the monthly instalments, then you have the option to buy the car at the end with something called a balloon payment.

PCP deals generally involve slightly higher monthly payments - this is so you can build equity that you put towards the deposit on your next car.

Whereas leasing deals aim at offering customers the lowest possible monthly payments. But remember, you have to hand the car back.

But should you lease or buy a car?

>> Search for car leasing deals

Mercedes A-Class moving

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 mileage limits
  • No damage fees
  • Can modify without permission
  • Often better value long term
  • Can sell if need money

Buying cons:

  • Depreciation
  • Big initial outlay
  • No new car every few years
  • Best manufacturer deals based on finance
  • Big mistake if you don't like the car

Leasing: 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.

Skoda Karoq, Honda CR-V, Peugeot 3008, Hyundai Tucson

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 direct 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:

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.

Handing back lease 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, but not necessarily the best value over time, and you like changing cars every couple of years, leasing, is most likely best for you.

Discover more about car finance: