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“Should I lease or finance my next car?” This is one of the most common questions we hear here at Wilsons Motor Group in Epsom, Surrey.
The answer is: it depends on your circumstances and what would make the most sense for you. To understand which one is better for you, we’ve put together this guide to help you in your buying journey.
Let’s take a look at how car leasing works without added jargon. When you lease a car, you never own it. You agree to use the car for a fixed period, usually two to four years, in exchange for a monthly fee.
Your monthly payments cover the car's depreciation during your lease term, plus interest and any fees. Before you start, you'll usually pay an initial rental, often equivalent to three to nine months' rent.
The biggest benefit of leasing is that you drive a newer car for a lower monthly payment than you'd typically pay to own it. By returning the car before it loses most of its value, you avoid the sting of depreciation. An added advantage is that maintenance costs are often lower because the car remains under the manufacturer's warranty. If you enjoy driving the latest technology or safety features, leasing makes it easy to upgrade every few years.
The main downside of leasing is that at the end of the term, you have nothing to show for the payments you've made. Moreover, leases come with annual mileage limits, and going over them results in penalty charges. The final caveat is that you also need to return the car in good condition; anything beyond fair wear and tear will cost you extra money.
Leasing works best for people who want lower monthly costs, don't drive high mileage, prefer to change their car regularly, and don't mind not owning a car.
Now that we understand how car leasing works, we can take a look at car financing. The main difference is that finance lets you own the car at the end of your agreement, as you build towards ownership while you drive it. The two most common types are Hire Purchase (HP) and Personal Contract Purchase (PCP).
Hire Purchase (HP) spreads the total cost of the car across fixed monthly payments. You put down an initial deposit, and once you've made your final payment, the car is yours. You always have the option to hand the car back once you have paid at least 50% of the car value.
Personal Contract Purchase (PCP) works a little bit differently. Your monthly payments are lower because you're only covering part of the car's value. At the end of the term, you choose: pay a final "balloon payment" to own the car, return it, or use any equity as a deposit on your next vehicle. One thing to remember is that PCP usually comes with mileage limits.
Financing is a great option if you want to own the car in the end or if you want the freedom to drive as much as you like without worrying about mileage limits (HP allows this). Overall, the biggest benefit of financing is the option of ownership at the end or the ability to use the amount paid towards another vehicle.
The main negative of financing is the higher cost. Monthly payments on HP tend to be higher than those on a lease or a PCP. PCP involves a large balloon payment if you want to keep the car, which catches some buyers off guard. And while you're paying off the finance, the lender has an interest in the vehicle, meaning you can't sell it freely without settling the agreement first.
Whether leasing or financing is good for you depends on your circumstances and what you value the most. When we discuss financing versus leasing options, we ask our customers questions to help them clarify what matters most to them.
If you’re still unsure which one is the better option for you, our team here at Wilsons Motor Group in Epsom, Surrey, is happy to help you make the right decision.
We’re the largest family-run new and used car supermarket in the South of England, and we’ve been selling cars for over 120 years.
Our incredible team of specialists is always on hand to help you and walk you through your options.
Yes, but it usually comes at a cost. Most lenders will charge an early termination fee. With HP, PCP, you can hand the car back once you've paid at least 50% of the total amount owed, which limits your liability. Always check the terms of your specific agreement before committing.
Both involve a credit check and will appear on your credit file. Keeping up with payments on either option can help build a positive credit history. Missing payments on either will negatively impact you, so it's important to choose a monthly amount that genuinely fits your budget.
You'll pay a per-mile penalty charge at the end of the contract. These charges vary between providers but can add up quickly if you significantly exceed your agreed limit.
No. At the end of a PCP agreement, you have three options: make the balloon payment to own the car, return the car and walk away, or use any equity you've built up as a deposit on your next vehicle. You're never obliged to buy.
If you're self-employed or run a business, leasing can offer tax advantages worth exploring with your accountant. If you cover high mileages for work, a finance agreement with no mileage cap, such as HP, may save you money compared to a lease with strict limits.