Is It Better To Lease Or Buy A Car?

Cars: buy or lease?

When you're considering whether it's better to buy or lease a car – the answer comes down to your budget and circumstances. In some cases, buying a vehicle outright may be possible if you have immediate funds. In comparison, a leasing deal allows you to spread the cost of a new car.

Examples of when it's beneficial to lease a car:

• It's ideal if you want to upgrade your car regularly
• Fixed lower monthly costs make managing your budget easier
• There's no hassle of selling the car to buy your next one or depreciation worries

Examples of when it's beneficial to buy a car:

• You want to own a car for more than a few years
• You don't want to have any restrictions such as mileage to worry about

How does car leasing work?

Car leasing is similar to renting a car but long term. It's also known as Personal Contract Hire (PCH). Leasing works by paying an initial rental, typically the equivalent of one to 12 months instalments. This is followed by fixed monthly payments for a period of between two and four years.

Unlike other finance options, such as PCP, you have to return the car at the end of the lease, and there's no balloon payment.

Learn more about car leasing in our what is car leasing guide.

What about buying a car?

Buying a car outright means you need the funds available to make a purchase. This, of course, could be from your own money. However, other options such as PCP finance, bank loans and HP finance are also available.

Cash/credit card

Cars can be purchased using cash or a credit card, and this allows you to own a vehicle outright. However, it's worth noting that using a credit card to pay could incur steep interest charges and may cost more than other finance options.

Bank loan

Bank loans are a popular way to purchase a car. You have some flexibility in how long you'd like the loan term to be. But rates vary on several factors such as credit history, income and loan term.

Personal Contract Purchase (PCP)

PCP is a common finance option for purchasing a new vehicle. In this agreement, you pay a deposit towards the car, which is followed by fixed monthly instalments plus interest. At the end of the contract, there's a larger payment or balloon to pay in order to own the car outright.

However, you don't have to pay this, as there are a few other options including:

• Using any equity in the vehicle as a down payment towards a new car
• Handing the car back

Hire Purchase (HP)

Hire Purchase works in a similar way to PCP, but there's no balloon payment at the end. This means monthly payments are higher over the agreement, but you own the car outright at the end of the contract.

What's the difference between leasing and buying a car?

The main difference between buying and leasing is that in one scenario, you own the vehicle, and in the other, you don't.

There are numerous other differences between these options, including:

Benefits of leasing a car

If you decide to lease a car, the main advantages include the following:

Flexible initial payment

Unlike a deposit, the initial payment goes towards the overall cost of the leasing deal. You can choose to pay between one and 12 months of instalments, and the more you pay, the less your monthly payments will be.

Lower monthly costs

Monthly costs are fixed, and you can choose a vehicle that suits your budget. With a higher initial rental payment, your instalments will be lower over the term. However, at Leasing Options, deals start from as low as £159.76 a month for a Seat Ibiza*.

*Prices are subject to change.

Drive the latest models

As the cost of leasing a car is often lower, this opens you up to a wider range of vehicles than if you were paying outright or taking up a finance option.

More flexible contract terms also mean you can get the latest models more regularly. Leasing agreements are generally between two and four years, but some companies allow shorter or longer terms.

Fewer repair costs

You will be driving a new and more reliable car, which makes it less likely you’ll have to pay out for big repair items like aircon units or timing belts. The battery will also remain in good working order throughout the lease period and vehicles are usually covered by a manufacturer’s warranty.

Plus, when you take up the contract, you have the option of including maintenance cover, which covers minor repairs, tyres and servicing.

Learn more about the benefits of car leasing in our guide.

Disadvantages of leasing a car

Some things to consider before leasing a vehicle include the following:

Mileage allowance

A mileage allowance is agreed upon at the start of your leasing contract. This is flexible to suit your driving needs. However, if you exceed this, an excess mileage charge occurs. If you are nearing this allowance, it may be possible to increase it and avoid any surprise charges – helping you save costs overall.

Early termination fee

If you need to end your contract early, an early termination fee applies. For more information, visit our cancelling a lease early guide.

Fair wear and tear policy

A fair wear and tear policy covers all lease cars. This allows for the normal wear and tear expected during the contract period. In most cases, you won’t have to worry about a few chips or small scuffs. But anything significant may incur a damage fee.

Benefits of buying a car

The main advantage of buying a car outright include the following:

Ownership of the car

You own the vehicle or have the option to own it if you're buying with car.

No mileage allowances

There are no mileage allowances to worry about if buying outright. However, there may be minimal allowances if using finance options.

You can hand the car back if using finance

If you use car finance to buy a car, there's an option to hand the vehicle back or part-exchange it for a new car.

Negatives of buying a car

Some things to consider before buying a vehicle include the following:

Less flexible finance options

Car finance options tend to be less flexible and lengthier than leasing deals. So, you may not be able to upgrade as regularly.

Hassle of selling a car

If you want to buy a new car, you'll need to sell your existing one first. This can be challenging depending on the used car market prices.

Depreciation costs

In a lease contract, you don't have to worry about depreciation. However, if you own a car, this cost should be considered, especially when it comes to reselling.

Higher maintenance costs

The responsibility of servicing, repairs and maintenance falls to you when owning a car. As it gets older, the costs of maintaining it often increase too.

Is it cheaper to lease or buy a car?

With each option, there are several factors to consider. So this makes it challenging to give a definitive answer on whether buying or leasing a car is cheaper.

In the case of leasing vs PCP finance, you may find leasing a cheaper option, as there is interest and the balloon payment to consider. However, this also gives you the opportunity to own the vehicle where leasing does not.

Leasing also minimises maintenance costs, and road tax is included within the monthly instalment.

Should I buy or lease my next car?

The choice of buying or leasing a car should be considered based on your budget, circumstances and personal preferences. If you want to own a car outright, then car finance or using cash to purchase is a good option.

However, leasing may be a better solution if you're looking to get the latest models more regularly and save on maintenance costs.