Leasing Vs Buying a Car: Which is Better?
Most people in the UK buy their car with the help of finance, but a growing number of people are choosing another option: A car lease (also known as Personal Contract Hire or PCH). Whether you choose to lease or buy could have a major impact on your costs and the process of getting and running your car.
This guide will help you understand the differences between leasing vs buying a car and ultimately which is going to work out best for you.
Leasing versus buying a car in a nutshell
When you lease a car, you make a monthly payment for use of the car, but you never actually own the vehicle. On the other hand, while most people who buy a car still have a regular finance payment, at the end of the term they will have fully paid off the car to own it.
Reasons to lease a car
-
You’d prefer to drive a new car with the latest tech which would be out of reach if you were to buy it.
-
You’d like to easily upgrade the car you drive every few years.
-
You don’t want the hassle of selling or trading in your car when you want to replace it.
-
You want the option of having one payment for your car, the maintenance and some of the other costs of running a car.
Reasons to buy a car
-
You either have the funds to buy the car outright or are happy to take out finance to pay for it.
-
You value actually owning the car with the freedom to modify it as you’d like.
-
You don’t want any limits on your mileage and how you use the car.
-
You want to be able to sell your car when it comes time to replace it.
Leasing vs buying a car compared in detail
Here’s a detailed rundown of the main ins and outs of leasing vs buying a car. For buying a car, we’ve shown the three main options: buying through a Personal Contract Purchase (PCP); buying with a car loan or buying the car outright with cash.
Leasing a car
-
Are there any restrictions on the car you can get? No
-
Do I own the car? No
-
Credit check required? Yes
-
Initial payment/deposit required? Yes usually, but there are no-deposit car lease options
-
Is there a regular payment? Yes
-
How long is the finance term? 1-4 years
-
Will I be paying interest? No
-
Can you modify the car? No
-
Is there a mileage limit? Yes
-
Am I responsible for insuring the car? Yes
-
Am I responsible for car maintenance and MOT? Yes but costs can be included in the regular lease payment
-
Is it possible to end the agreement early? Yes but it can be expensive to do so.
-
Is there a final balloon payment? No
-
Are there penalties if I damage the car? Yes
-
Will I be responsible for selling the car when it needs to be replaced? No
Buying a car through PCP
-
Are there any restrictions on the car you can get? No
-
Do I own the car? Optional at the end of the finance term
-
Credit check required? Yes
-
Initial payment/deposit required? Yes
-
Is there a regular payment? Yes
-
How long is the finance term? 1-5 years
-
Will I be paying interest? Yes
-
Can you modify the car? No
-
Is there a mileage limit? Yes
-
Am I responsible for insuring the car? Yes
-
Am I responsible for car maintenance and MOT? Yes
-
Is it possible to end the agreement early? Yes but it can be expensive to do so
-
Is there a final balloon payment? Yes
-
Are there penalties if I damage the car? Yes
-
Will I be responsible for selling the car when it needs to be replaced? Yes assuming you take the option to buy the car at the end of the finance term
Buying a car through a personal loan
-
Are there any restrictions on the car you can get? No
-
Do I own the car? Yes
-
Credit check required? Yes
-
Initial payment/deposit required? Optional
-
Is there a regular payment? Yes
-
How long is the finance term? 1-7 years
-
Will I be paying interest? Yes
-
Can you modify the car? Yes
-
Is there a mileage limit? No
-
Am I responsible for insuring the car? Yes
-
Am I responsible for car maintenance and MOT? Yes
-
Is it possible to end the agreement early? Yes but there will be fees and you may need to sell the car to pay out the finance
-
Is there a final balloon payment? Optional
-
Are there penalties if I damage the car? No
-
Will I be responsible for selling the car when it needs to be replaced? Yes
Buying a car with cash
-
Are there any restrictions on the car you can get? No
-
Do I own the car? Yes
-
Credit check required? No
-
Initial payment/deposit required? Yes, the full cost.
-
Is there a regular payment? No
-
How long is the finance term? n/a
-
Will I be paying interest? No
-
Can you modify the car? Yes
-
Is there a mileage limit? No
-
Am I responsible for insuring the car? Yes
-
Am I responsible for car maintenance and MOT? Yes
-
Is it possible to end the agreement early? n/a
-
Is there a final balloon payment? No
-
Are there penalties if I damage the car? No
-
Will I be responsible for selling the car when it needs to be replaced? Yes
Leasing vs buying a car: Which is more expensive?
When it comes to cost when leasing or buying a car, neither option is overall cheaper or more expensive in all scenarios. But, particularly if you want a new car, a benefit of car leasing is that it usually is more affordable, both overall and in regular payment (assuming the lease/finance terms are comparable).
This is what you would expect. After all, when you buy you’re paying the full value of the car as opposed to simply paying to use the vehicle, which is what leasing involves.
The difference with buying is you can eventually sell the car to recoup some of what you paid. Obviously depreciation will have done its things and you likely will get significantly less than what you paid for the car. But the resale value of the car will offset a good chunk of the extra you would have paid by buying the car instead of leasing it.
What to ask yourself when deciding between leasing and buying a car
The truth is, a lease will work better for some people and buying will be more suitable for others. To help you decide, here are a handful of questions to help you self-assess whether you’re more suited to being a leaser or a buyer.
How long do you plan on keeping the car?
If you intend to upgrade your car regularly (say every couple of years), leasing usually makes doing that more straightforward. This is particularly relevant now as electric cars become more dominant and the technology (e.g. batteries) is changing so quickly.
Cars are notoriously bad for depreciating in value in their first 1-2 years and the impact of this is less if you are leasing the car.
But if you plan on keeping the car for a long time (say 5+ years) buying the car becomes more practical and your costs will drop over time. Once the car is paid off, you will no longer need to make repayments.
Do you need flexibility?
A car lease is subject to more restrictions as it’s not actually your car. The main one is a mileage limit. Now, you will be able to set this limit before the lease begins (your lease payment will be higher if you set a higher limit and vice versa) but if you go over the limit, you’ll be hit with a fee.
If you want the flexibility to drive as much as you like even if your driving habits change, buying the car will allow for that.
Do you want to make the car ‘your own’?
If you want to modify the car in any major way, you likely won’t be allowed to do that under a lease. It’s a bit like renting a house versus owning it.
What you can do is request modifications to be made to the vehicle before you start the lease. But once the agreement starts, you won’t be able to make modifications without getting the leasing company’s permission.
Is the car likely to be subject to heavy wear and tear?
A level of wear and tear is acceptable even if you are leasing a car, but any significant damage or soiling may mean you are charged a penalty fee when you need to hand the car back.
If realistically there is a chance you won’t be able to keep the car in good condition (for whatever reason – kids, work etc.), buying it could give you less to worry about.