State-of-the-art smartphones, e-scooters and even individual TV episodes are among a growing list of things you can rent in 2023. But in today’s economy, should you lease or buy a car?
Car leasing is very similar to renting. You fork out 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.
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 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
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
In most cases, leasing monthly payments (not total ownership costs) are cheaper than PCP, bank loans, or a HP agreement because you’re basically renting the car.
*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 drive 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 fairly 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). Because of this, 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. 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?
We’re in an interesting time for new cars at the moment. Chip shortages, the war in Ukraine, skyrocketing energy costs and the lingering impact of Covid are all to blame for increasing new car prices. And it’s not just the RRP that’s rising. APR rates for PCP deals were, until the end of 2023, astronomically high. Citroen used to charge a whopping 11.9% APR for a C3.
Thankfully, most manufacturers’ APR rates have now settled between 7 and 9% and 0% APR deals are starting to creep back into the market. But they’re nowhere near as numerous as they were before the pandemic.
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.
If you’re unsure of the future and want to drop your immediate monthly costs, we also recommend buying used. Buying a used car for £1,000 and running it into the ground will most likely give you enough time to wait out the stock level crisis and see the new car market return to some kind of normality.
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