When to Lease or Buy a Car

Do you know your options for getting your next car? Why not starting focusing on finding the best deal for you and not just finding the cheapest car. Car deals come in a range of packages and there's an option to suit any need or budget. You can still stick to what you can afford and look across a range of deals for new and used cars to find better deals from an alternative financing option that you might not have considered before.

There are several options for you. You can buy the car outright for which you'll pay off the price of the car up front and maybe part exchange your old car to help cover the costs. Or if you want a finance option you could use a hire purchase (HP) that will spread the cost of the car across a 1 - 5 years. There are also personal contract purchases (PCP) to consider that give you more options at the end of a contract other than buying the car. An alternative to buying a car is leasing. Leasing means you'll drive a car for a few years and never actually own it. After the lease period has finished you will return it to the leasing company. Learn more about leasing with our guide to personal and business leasing.

Options when buying a car

If you want to own the car you drive you'll have to buy it. The main benefit of buying a car vs leasing is that you gain and own a financial asset as well as a vehicle you can use for your own well being. The vehicle is yours to own and do with what you wish, and you can add modifications or change the appearance as you please.

As a car owner you acquire equity and once you come to purchase a new car you can part exchange your current car and put the value towards the cost. However, you do have the depreciation and resale concerns as an owner. Cars lose value exponentially and when you come to sell it or part exchange it will be worth considerably less. Plus, if you choose to sell it privately this can at times be a drawn out process and the only option.

If you buy a car outright from a dealership or private owner you would simply pay a single one off payment. This means no monthly repayments to worry about like you would have with alternative finance options. Personal contract purchase is a good option if you can't afford to buy a car outright. With a PCP deal you agree to pay monthly instalments across a 1 - 5 year contract. This is also the same for a hire purchase, where you pay of the value of the car over time.

The difference between the two is that you can choose to not buy the vehicle with a PCP agreement, whereas a HP contract requires you to pay off the value of the car to eventually own it. A personal contract purchase has the option to either buy the car, part exchange it for a new one, or simply just end the contract once the contract-term has finished.

Leasing vs buying a car

Leasing a car is an alternative to buying if you don’t want to own the vehicle you drive. Personal contract hire (PCH) are lease agreements where you drive a car that you don’t own for an extended period of time (commonly between 12 – 60 months).

Leasing is cheaper than buying if you want to drive new models and change your car regularly. You can drive the latest cars and not have to worry about asset depreciation or resale issues; you simply pay an initial rental fee followed by fixed monthly instalments for the duration of the lease. If you otherwise wouldn’t be able to afford a new model then leasing lets you drive the car you want, with relatively low monthly repayments and a cheaper finance alternative than buying it outright.

A disadvantage of a lease agreement is that you have to return the vehicle at the end of the contract as there is no option to purchase it. This means you’ll never own the asset or acquire equity that you can put towards the purchase of that or any other vehicle in the future. Lease agreements also include mileage limits, so you will have the same freedom as ownership and nor are you be able to make any personalisation to the leased vehicle. 

Is car leasing worth it?

If you want to drive the latest models then leasing is a viable option, especially if you can’t afford to buy the car outright. You need to make sure you can afford the monthly payments and that you have a good credit score that will allow you to lease in the first place. If your income has reduced in recent year, or you have otherwise found financial hardship, then you may find leasing the most effective for your finances as it avoids any large lump-sum payments.

Leasing is also worth it if you don’t want to own the vehicle and are happy changing what you drive every 3 - 5 years. As you won’t own the lease car, you shouldn’t have any concerns for its depreciation and resale. If you want the option to own the car, take a look at our comparison between leasing and personal contract purchases.

When leasing you’ll have to be confident that you can take good care of the car as you’ll be restricted in its use and you could incur extra charges at the end of the lease for any modifications you’ve made and for unacceptable wear and tear. With a leased car you’re limited by how many miles you can do, too. Be aware of these limitations as you don’t want to incur any extra charges, especially if you are leasing to save money overall. You will agree with the leasing company prior to the contract on mileage limits etc. So ensure that the contract fits your lifestyle and needs of the vehicle.

It’s difficult and costly to try and exit a lease agreement early so you need to be comfortable with car you’re leasing. You can cover any unexpected maintenance or repair costs with a maintenance package for the lease car. So this will cover annual servicing and MOT costs, as well as general ‘wear and tear’. This can be reassuring as it will cover any unexpected maintenance fees that you would otherwise have had to pay yourself. 

When to lease or buy a car

  • I want to drive a new car

    Car leases are typically for brand new cars and for motorist who want to get behind the wheel of the latest models. If you don't mind not owning the car than leasing is an option you. The repayments for a lease will be cheaper overall than buying it, but if you wanted the option to purchase the car then consider a personal contract purchase.

  • I want to drive a used car

    Buying a used car carries less of a price tag then a new one. Plus, if you factor in the part exchange of your current vehicle you may be able to afford to buy it outright. Just like if you’re buying a new car, you can buy used cars with a hire purchase or a personal contract purchase and finance the cost over monthly payments. 

  • I don't want to own my car

    If you don’t want to own your car, then leasing is the right option for you. Personal contract purchase does give you the option to buy the car outright after the lease period ends and you will have more flexibility at the end of the contract.

  • I want a car for my business

    You can lease a car for your business using a business contract hire (BCH). BCH is available to businesses of all sizes who can lease vehicles through their company. If they are a VAT registered company, they are also able to claim 50% VAT back on their monthly repayments and 100% VAT back on any additional maintenance packages they’ve purchased.

  • I change my car regularly

    If you know you want to drive a new model every 3 - 5 years then leasing is a suited option for you. You can drive the latest cars at a fraction of the cost of buying them outright and you won't have to deal with any resale or asset depreciation issues.