Leasing vs Buying: What is the best way to pay?

Should you lease or buy your next car?

Leasing is a fantastic method of spreading the cost of your new car. It comes with many benefits when compared to buying a car outright.

Both options are often pitted against each other.

But by financing your car over a set period of time, you don't have to make any big upfront commitments. Our car lease deals give you access to a whole host of brand-new vehicles at affordable monthly prices.

But is leasing right for you? Or should you buy your next car?

We’ve pulled together a comprehensive guide to the differences between leasing and buying, so you can get behind the wheel with confidence.

What is leasing?

When you lease a car, you’re essentially renting it from the funder for an agreed period – much like you would with a house.

It’s also known as Personal Contract Hire. This is an agreement where you pay an initial deposit of between one and nine months, followed by a set period of monthly payments.

A lease contract generally lasts from two to four years, and you also get to pick your annual mileage, which influences how much you’ll pay.

At the end of your contract, you hand the car back to your funder, and you’re free to move onto the next without the faff of trying to sell it first.

You’ll never own the car: but if ownership isn’t something you’re bothered about, leasing can be the most affordable way to get your hands on some of the latest models for a much nicer price.

Leasing vs buying: What’s the difference

The main difference between leasing and buying is the ownership of the vehicle.

If you buy a car, it’s yours.

You sort out all the servicing and MOTs and maintenance for however long you have the vehicle, and you have to deal with either selling it on or scrapping it when you want a new car.

But when you lease a car, you’ll never own it.

You’re leasing it from the funder under pre-agreed terms, and you’ll return the car to that same funder at the end of your deal, with nothing more to pay (as long as there’s no excessive damage or additional mileage to pay for).

However, you benefit by not paying for the full value of the vehicle during the course of the lease term, and you don’t have to worry about the resale value.

You can also bundle additional costs like a maintenance package into your lease deal, so you can spread the cost and easily budget for those little extras that will wear out and need replacing from time to time. 

Buying does mean that you can drive it or sell it as you wish. There’s no contract in place, so you can sell it after a month if you so desire, and you aren’t bound to any annual mileage limits.

However, it does tend to end up more costly, and the risk of depreciation means you might not get as much back by selling it as you might have hoped for.

Key differences between leasing and buying

Is leasing a car cheaper than buying?

By leasing a car, you don’t have to commit to huge upfront costs or pay for it in one sizeable transaction like you would with buying.

Because you’ll never own your lease car, you only pay the value of depreciation for the length of your lease agreement.

The AA believes that a car will lose 60% of its value within three years if you’re driving an average of 10,000 miles a year. A quick look at the numbers shows why leasing is so popular.

If you bought a car for £20,000, you could stand to lose £12,000 by the time you sell it, based on the AA’s research.

Leasing a car doesn’t prevent it from depreciating.

However, it does take away the financial risk that comes with relying on residual values because your monthly payment is set at the start of the contract, with depreciation already factored in.

You also benefit from the freedom of changing your car every few years without the hassle of selling privately, and all the pitfalls that come with that.

Can I drive a more expensive car by leasing?

Leasing does open up a bigger pool of potential cars because of the competitive monthly payments.

With that in mind, you could theoretically lease a car that would have been out of reach if you were going to buy it outright. Each application does take into account your affordability, so you still need to prove that you can pay the monthly rental.

But with some of the best lease deals around, you could be driving away in an absolute bargain.

Pros and cons of leasing

The pros of leasing include:

• No huge upfront payments
• No large sums of money tied up into a depreciating asset
• Access to the latest and newest models
• Avoid the stress of selling
• Can bundle maintenance costs into your monthly payment
• The easiest way to drive a new car every few years
• Flexibility: you get to choose the terms of your lease agreement to suit you

The cons of leasing include:

• Mileage limits and excess mileage charges
• No opportunity to own the car
• Leasing requires a good credit score
• You can’t customise the car in the same way
• Early termination fees apply if you want to break your contract
• Excess damage charges may apply if the car is damaged beyond the fair wear and tear guidelines

Is it better to lease or buy a car?

Ultimately, whether it’s better to lease a car or buy a car is down to your personal circumstances and financial situation.

There are other finance products available that might be more suited to you, or you might want to consider buying a used car to keep costs right down.

However, if you want the convenience and peace of mind that comes with driving a brand-new car, you quite like the idea of switching cars every few years, and ownership doesn’t bother you, then leasing is likely to be the most cost-effective way of getting behind the wheel.

If ownership is your main priority, then buying outright or opting for a PCP or HP contract are your only options.

Should I lease a car?

You should lease a car if:

• You want lower, fixed monthly payments for a specified period
• You like the idea of swapping your cars every few years
• You’re going to lease the car for your business
• You want to be able to easily budget your outgoings
• You want to be able to access the latest tech and safety features

Should I buy a car?

You should buy a car if:

• Ownership of the car is important to you
• You want to drive the same model for more than four years
• You don’t want an annual mileage limit
• You know your financial position might change significantly
• You’re not fussed about access to the latest technologies

What are the other car finance options?

As well as car leasing and outright purchase, there are other ways to finance your car including loans, PCP and HP.

If you don’t want to lease your car, or buy it with cash or a debit/credit card, then you do have some other options to finance your next vehicle.

Hire Purchase, or HP, is more similar to a loan than it is to PCP or PCH. Essentially, it’s a method of car ownership which allows you to spread the cost over a set period. Once your monthly repayments are over, the car is yours.

It does generally work out, month on month, as more expensive than either of the other two finance options, but if you know you want to own a brand-new car but don’t want to take out a loan or pay for it upfront, it could be the right option for you.

Personal Contract Purchase, or PCP, is much more akin to leasing.

Like leasing, you pay an initial rental and then your set monthly payments for the duration of your contract, but unlike leasing, you have an optional balloon payment at the very end. If you choose to pay this, the car is yours.

If you don’t want to pay off the final balloon payment, then you can hand the car back and you’re free to move onto the next.

It’s a good option if you’re pretty sure you want to own the car in the future and you know you’ll have the funds for the final payment, but if you’re not fussed about ownership, then leasing can be a cheaper funding method than PCP.