Leasing vs Buying a car: Which one should you choose?

When it comes to choosing your next vehicle, an important factor to consider is how you’re going to pay for it.

Are you going to lease it on finance? Or would you rather buy it outright and own it?

Well, to make the decision, first you need to know what each entails and the differences between the two.

Leasing a car

Leasing is a way to drive the car you want without having a big upfront payment. Instead, the cost of the vehicle is split over monthly instalments, which you make until the end of your term. Then, at the end of your agreement, you just pick another.

It means you don’t have to use savings or have a big chunk of cash available to drive your dream car. And it also means you can usually drive a more expensive vehicle than you may otherwise be able to afford.

Buying a car

Buying a car is best if you want to own the vehicle outright, either from the start if you can pay it off all in one go, or at the end of your finance agreement.

Whether at the beginning or end, once you’ve paid for the car, it means you have an asset to your name, from which you can choose to sell privately, keep driving, or part exchange and use as a deposit.

Different types of leasing

Although leasing is a common phrase, there are a couple of ways you can do it. Either personal contract hire (PCH) or personal contract purchase (PCP).

Personal contract hire

PCH is a low-cost, low-commitment way to drive the car you want over a set amount of time.

You decide how long you want the car for, make your monthly payments, then at the end of your agreement you simply hand the car back to the finance company and walk away.

And as long as you’ve kept to the terms of your agreement – like keeping under the agreed mileage, maintaining the vehicle properly, and there’s no damage outside fair wear and tear – then you don’t owe anything else and are free to find your next car.

PCH is great if you want hassle-free motoring and you’re not bothered about ever owning the vehicle.

Personal contract purchase

PCP is another way you can enjoy the vehicle you want without having the commitment of ever owning it.

Like a PCH, you make your monthly payments while you drive it, then at the end of your term, you have three options – one of which is to hand the car back to the finance company and walk away.

PCP can be a great way to enjoy the benefits of leasing while still having control over your decision at the end of your agreement.

Also, if you don’t have a perfect credit score, there’s more chance of you being accepted on a PCP agreement than PCH – albeit that’s not set in stone.

Different types of buying

If you want to own the car outright, however, you also have a range of options to suit your circumstances.

Buying in cash

If you have savings or a large chunk of cash, you could buy the vehicle outright and not have to worry about monthly payments.

Although, usually, this options isn’t available for most people as even if they have the finances, they often put it to use elsewhere.

Personal contract purchase

Remember this one? Well, although one of your three options when you take out a PCP is handing the car back and walking away, another is to pay what’s known as the balloon payment.

It’s the final payment at the end of your term – usually much larger than your monthly payments – and once it’s paid, the car is yours.

It can be a great way to defer a large payment if you want time to save or if you’re unsure whether you actually want to keep the vehicle.

Hire purchase

Probably the best-known finance option for owning a car is hire purchase. Hire purchase is where the cost of your vehicle is split evenly over monthly payments – usually 48 or 60. And after you’ve paid your final payment, the car is yours.

Hire purchase is typically the easiest form of car finance to be accepted for, and it can be a great way to help build your credit profile while owning a car – if you want or need to.

Personal loan

Another viable option for owning the vehicle is to take out a personal loan. This usually comes from a bank or building society, or can also be a gift from a family member.

It’s similar to hire purchase – in that your payments are equally split over the course of your agreement. But you buy the car in cash and you’re repaying the bank rather than a car finance lender.

Is it cheaper to lease or buy a car?

In the short-term, leasing is undoubtedly cheaper than buying. Because you’re not covering the whole cost of the vehicle – only its depreciation while you drive it – your monthly payments are usually less or last a shorter period than if you choose to buy.

However, in the long-term, if you plan on keeping the vehicle for a while, buying will most likely turn out cheaper.

That’s because, with a lease, you never make any of the money that you’ve spent back. Whereas if you buy the car, you get an asset to ‘run into the ground’ or sell.

Also, once you own it, you no longer have any monthly payments to make. Whereas if you jump from lease to lease, you’re always making them – although it does mean you get a new car every few years.

Advantages & disadvantages of car leasing

Like any financial decision, leasing a car comes with pros and cons, and its important to understand them before you sign up.

Advantages of car leasing

Low monthly payments
Low commitment
Can include maintenance packages to cover costs of services and MOTs
Enjoy the car in its best years often under manufacturer’s warranty
Get a new vehicle every few years
No big upfront costs
Road tax is usually included for the duration of the term
£0 deposit
Drive a car you may not otherwise be able to afford

Disadvantages of car leasing

Mileage restrictions
Vehicle must be returned in the same state as you took it and properly maintained
Never own the vehicle
Can be costly long-term if you jump from lease to lease
If you exceed your mileage or damage the vehicle, you may face penalty charges
You’re not meant to exit a PCH early – if you do, you may face big early repayment charges

You can see if you’ll be accepted for finance in minutes without affecting your credit score. Just click Apply Now below.

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Advantages & disadvantages of buying a car

Just like leasing, buying a car comes with its own advantages and disadvantages.

Advantages of buying

Own the vehicle outright either from the start or at the end of your finance agreement
Can use the car as a deposit on a new one or sell privately for cash once owned
Often easier to get approved for HP than other finance types
No mileage restrictions
You can personalise the vehicle to your tastes
Can be a cheaper alternative to leasing in the long-term

Disadvantages of buying

Higher monthly payments than leasing or have a large upfront cost
Need to keep the vehicle for an extended period to get the most from it, otherwise, it may prove more expensive than leasing
No maintenance packages available, so if anything were to go wrong, the cost falls on you to fix it outside of the manufacturer’s warranty