Leasing a car vs buying
Buying a new car can be an expensive business. An alternative option could be leasing, which has seen rise in popularity – particularly for people switching to plug-in vehicles.
But for many of us, leasing is still a bit of a mystery. So, what should you consider when deciding what’s right for you?
Buying a new car can be an expensive business. An alternative option could be leasing, which has seen rise in popularity – particularly for people switching to plug-in vehicles.
But for many of us, leasing is still a bit of a mystery. So, what should you consider when deciding what’s right for you?
What is leasing?
A car lease arrangement, also known as purchase contract hire (PCH), is essentially a long-term rental agreement.
You get a brand-new vehicle and, in return, you pay the lease company monthly payments for the length of the lease – typically two to four years.
Depending on the lease arrangement you’ve taken out, at the end of the rental period you can either:
- Return the car and walk away, or
- Replace the car with a brand-new model and start a new lease arrangement.
Here are some of the main differences between leasing and buying a car.
| Leasing | Buying a car outright | |
| Upfront payment required | ✓ | ✓ |
| Fixed monthly payment | ✓ | ✖ |
| No mileage limits | ✖ | ✓ |
| Road tax and delivery included | ✓ | ✖ |
| Own the car | ✖ | ✓ |
| You can modify the car | ✖ | ✓ |
| You have the option to sell the car | ✖ | ✓ |
| New car every couple of years | ✓ | ✖ |
What are the other ways to buy a car?
If you can’t afford to buy a car outright but don’t like the idea of effectively ‘renting’ your car, there are other car finance options to consider:
Hire purchase (HP)
You spread the cost of your car over several months or years. Once you’ve made the final payment, the car is yours and you become the legal owner.
Personal contract purchase (PCP)
This is much like PCH leasing, but the difference is you have the option to make a final payment, known as a balloon payment, and buy the car at the end of the lease agreement. This payment can be quite large.
Personal loan
This could be one of the cheapest ways to buy a car outright. Most lenders offer loans up to £25,000, or up to £50,000 for account holders, and you can pay back a fixed amount over a fixed period of time – usually between one and five years.
0% purchase credit card
Depending on the cost of your new car, it might be worth buying it with a 0% purchase credit card. You can then pay back what you owe, interest-free. Just make sure you pay back the full balance before the 0% introductory period ends or you’ll be hit with high interest charges. You’ll need a card with a sufficiently high spending limit to buy a vehicle.
What are the pros and cons of leasing a car?
Whether leasing is right for you depends on your circumstances and the vehicle you choose.
Pros of leasing a car
Good for premium cars
Leasing could be particularly advantageous on premium cars, as these cars might hold their value better so the lease firm can charge relatively low fees. So, you get to drive a prestigious car that you may otherwise be unable to afford.
Newer models more often
If you like to change your car regularly, you can take out a new lease with a new model at the end of your contract.
Fewer maintenance worries
New cars are less likely to break down or wear out, meaning your lease contract shouldn’t involve hefty repair bills.
Cheaper running costs
Your road tax should be covered by the lease company. Some companies also cover maintenance and servicing – subject to terms and conditions.
May be more cost effective for businesses
Lease payments are tax deductible. VAT-registered businesses can reclaim 50% of the VAT as well as the interest on the repayments.
Cons of leasing a car
Mileage limits
You might be limited to a maximum number of miles a year. If you go over the mileage allowance you may have to pay a fee.
No ownership
When you get to the end of your contract, you’ll have to hand the car back.
Possible additional costs
When you return the vehicle, the lease company will make allowances for fair wear and tear. But if the car has excessive damage, you might have to get it fixed yourself or pay a damage fee.
No customisation
Unlike buying a new car, you won’t be able to design your car to include extras. Likewise, as the car is owned by the leasing company, you won’t be able to modify it without their permission.
Penalties for leaving early
If you want to end the lease arrangement early, you’ll be charged an early termination fee.
What are the pros and cons of buying a car?
Pros of buying a car
You’ll own the car
When you buy, you’ll have the car for however long you want to keep it.
Drive as much you want
There’s no mileage limit when you drive your own car. But if you drive a lot of miles a year, then your running costs, including the cost of your insurance, will be higher.
You can choose the extras you want and modify your car
If you buy a new car, you can add extras and modify your car as you choose. Modifications could affect the cost of your insurance though.
You can part-exchange the vehicle
When you come to get a new vehicle, you could use your car as a trade-in or sell it and use the money towards your new purchase.
Cons of buying a car
Depreciation
Depreciation – the difference between the value of a car when you buy it and what it’s worth when you come to sell it – could have a big impact if you buy a new car.
May not be as affordable
Having to pay for a car upfront could make it very expensive. If you opt for a loan to pay for the vehicle then you’ll also be paying interest.
You’ll have to get rid of your car when you want a new one
You’ll have to sell your car, use it in part-exchange or dispose of it when you get your next car. Either way, this could be more complicated than handing it back to the lease company.
Do I need a good credit rating to lease a car?
Yes, you do. When you apply for a leasing contract, you’ll need to pass a credit check. This is so the leasing company can assess whether there’s a risk that you can’t make the monthly repayments. If your credit score is less than excellent or good, it’s unlikely you’ll be offered a leasing contract.
Top tipDon’t be swayed by low monthly instalments – you should work out the total cost over the entire contract to see if it makes economic sense to lease. Ideally, you’d want the overall amount to be less than you’d expect your car to lose in value if you’d sold it yourself. |
Where can I compare car insurance?
Our car insurance comparison service is a quick and easy way to compare a range of quotes, regardless of whether you’re buying or leasing.
Compare car insurance quotes with us in a matter of minutes and see if you can start saving on your new car.
Frequently asked questions
Is it worth leasing a car during the cost-of-living crisis?
It depends on you and your situation. If you lease a car, you’ll need to be sure you can keep up the payments. You’ll need to do your sums and compare how much a car loan would be in comparison.
Lease cars also tend to be new cars, so you might also want to see how a second-hand vehicle that’s only a couple of years old compares.
Why has car leasing become so expensive in the UK?
A combination of factors has increased the price of new cars around the world. Shortages of parts, including computer chips, and increases in the cost of energy, raw materials, parts and labour have all added to the cost.
Increases in interest rates and the cost of borrowing money have also increased costs for lenders.
How much deposit would I need to lease a car?
It depends on the leasing company, but you’ll typically have to make an upfront payment that’s equivalent to six months’ of payments.
Typically, the higher your deposit, the lower your monthly payments should be.
Can I part-exchange when I lease a car?
No, you won’t be able to part-exchange your old car for a leased car.
Can I take a lease car abroad?
If you want to drive your car abroad, you’ll need to get a VE103 vehicle on-hire certificate from your leasing company. This gives you permission to drive a lease car in the EU.
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Rory Reid - car and technology expert
Rory Reid is a car and technology expert. He serves as the main presenter on Auto Trader’s YouTube channel and was previously a host on BBC Top Gear and its sister show Extra Gear. He is also a presenter on Fifth Gear. Previously, he hosted Sky TV’s Gadget Geeks, CNET’s Car Tech channel, BBC Radio 5 Live’s Saturday Edition and on the YouTube channel Fast, Furious & Funny.