Should you lease or buy your next car?

December 03, 2021 by

Should lease or buy your next car? It’s a question you may be pondering when it comes to getting a new set of wheels, and it can be tricky to decide which way is best for you.

Data from the British Vehicle Renting and Leasing Association suggest more than 1.3 million vehicles on UK roads are currently leased, showing it to be a popular option for many. But what about yourself?

Leasing vs buying a car: what’s the difference?

Though the result is you driving a new car, leasing and buying are two very different approaches to ownership.

Personal Contract Hire (PCH) is the main way of leasing a car. You’ll pay a small deposit and a monthly rental fee for an agreed amount of time. This is typically two or three years but it can vary.

At the end of that period, you’ll need to hand the car back — you won’t have the option to buy it.

Buying will see you take outright ownership of the car, or have the option to do so in the case of PCP finance.

Your options for buying are:

  • Cash outright — you can pay the full costs of a car upfront with savings. Nothing else to worry about, although you will have to be mindful of depreciation and other ownerships costs
  • Bank loan — you can pay the full costs with a bank loan. Be aware that you’ll need approval for a bank loan, make repayments on time and have a good credit standing.
  • Hire Purchase (HP)HP is a type of finance that spreads the full cost of a car over a deposit and set monthly payments. You’ll pay a very small fee to take ownership of the car at the end of the agreement.
  • Personal Contract Purchase (PCP)PCP finance sees you pay a deposit at the start of an agreement, set monthly payments and then a final balloon payment. You don’t have to pay the fee if you don’t wish — you can instead opt to hand the car back and start a new agreement for something else
Feature Outright HP PCP Leasing
Deposit required  ✔
Fixed monthly payments
Mileage limits
Charges for excess miles
Depreciation risk
Own the car during the term
Option to own the car at the end of the term
Easy to end the contract after paying 50%
Different options at the end of the term
Option to pay a settlement figure to own the car
Payments could include delivery, breakdown, road tax and a warranty

Pros and cons of leasing a car

Pros of leasing a car

  • Monthly payments tend to be lower than financing
  • Short-term agreements make it easy to swap into a new car often
  • No large fees at the end of an agreement

Cons of leasing a car

  • You don’t have the option to own the car
  • Leasing agreements tend to have strict mileage limits with further costs for going over those
  • You’ll need to pay to give the car back before the end of your contract

Pros and cons of buying a car

Pros of buying a car

  • You’ll own it outright, or have the option to
  • Less strict mileage restrictions for finance, and none for outright
  • Option to hand the car back early if financed

Cons of buying a car

  • Buying typically works out more expensive on a monthly basis
  • Finance agreements tend to be locked in for longer than lease deals
  • You’ll have to bear the cost of depreciation

Is it cheaper to lease or buy a car?

Leasing a car tends to be much cheaper than buying a car, but that doesn’t come without downsides.

One way to look at it is as akin to renting a house compared to buying.

Like renting a house, you aren’t paying anything towards ownership of the car when leasing and you’ve got to stick to strict terms. That said, you won’t have to be worried about extra costs as long as you follow those.

Financing a car more like taking a mortgage. You will need a larger deposit and pay more in the long run, but you’ll own the car — or at least have the option to — at the end of an agreement.

Though like a house, if you own a car, you’re the one responsible for keeping it legal and roadworthy — which will need extra thought once it comes to an MOT being required.

Is it better to lease or buy a car?

Whether it’s better to lease or buy a car ultimately comes down to your preferences. Here are some example scenarios for each:

When it may be best to lease a car

  • You favour monthly lower costs over owning a car outright
  • You like to change into a new car frequently
  • You use the car for business — you may be able to get lower business lease rates

When it may be best to buy a car

  • You want outright ownership of the car
  • You’re happy to stick with one car for multiple years
  • You don’t want to be bound by strict mileage limits