Is it better to lease or buy a car?
March 10, 2025 by Siobhan Doyle
Should you lease or buy a car? You wouldn’t be the first person to ask this when considering a new set of wheels, and deciding which option is best for you can be tricky.
Most people have traditionally purchased new cars through a Personal Contract Purchase (PCP) plan, but leasing – especially with the rise of EVs – is growing in popularity. Leasing offers flexibility and lower monthly payments, with around 1.9 million of the estimated five million leased vehicles in the UK being private leases.
So, the question is: is it better to lease or buy a car? Here’s a handy guide to help you.
What is car leasing and how does it work?
A lease deal is essentially a long-term rental. Personal Contract Hire (PCH) is the most common way to lease a car, where you pay a deposit followed by a series of monthly rental fees for an agreed period – typically two to four years. You can vary the size of your initial rental fee, with a larger down payment resulting in lower monthly payments.
At the end of the lease, you must return the car, as there is no option to purchase it contractually – though some leasing firms may let you buy it if you ask. During the lease period, you do not own the car; it remains the property of the finance company, and if you do not keep up repayments the car can be repossessed.
Pros and cons of leasing a car
Pros of leasing a car
- Monthly payments tend to be lower than financing
- Short-term agreements are often available, making it easy to swap into a new car frequently
- No large fees at the end of an agreement
- Minimal maintenance costs
Cons of leasing a car
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- You don’t have the option to own the car
- Leasing agreements tend to have strict mileage limits with further costs for going over those
- You’ll need to pay to give the car back before the end of your contract
- Terms and conditions can be lengthier
What are the different ways to buy a car?
If you’re leaning towards buying your car, here are several options to consider:
- Cash or credit card: Paying upfront with savings or part-exchange means owning the car outright with no ongoing payments, but consider depreciation, ownership costs, and potential interest if you use a credit card.
- Car loan: Taking out a loan to buy a car can be a good option with a favourable interest rate, but you’ll need loan approval, good credit, and timely repayments. Secured loans, which require collateral, usually have lower interest rates than unsecured loans.
- Hire Purchase (HP): This lets you rent a car with monthly repayments, ultimately owning it at the end. HP is less popular than PCP (see below) because of its lower flexibility and higher monthly repayments.
- Personal Contract Purchase (PCP): For this, you need a deposit, monthly payments (typically two-four years), and an optional final balloon payment (GMFV). At the end, you can return the car, pay the balloon to own it, or use any equity toward a new car, typically from the same brand and finance company. The car remains the finance company’s property unless the balloon payment is made.
Pros and cons of buying a car
Pros of buying a car
- You’ll own it outright, or have the option to
- Less strict mileage restrictions for finance, and none when buying outright
- Option to hand the car back early if financed
- Fewer/no conditions on how you use the car
Cons of buying a car
- Buying typically works out more expensive on a monthly basis
- Finance agreements tend to be locked in for longer than lease deals
- You’ll have to bear the cost of depreciation
- Selling a car can take time
What are the key differences between leasing and buying a car?
The difference between buying a car and leasing one is similar to the difference between buying a house and renting one. Just like with houses, you can use financing options to fund a car. However, unlike a mortgage, where you are considered a homeowner and the loan is secured against the property, most car finance packages – such as PCP and HP – mean the finance company retains ownership of the vehicle throughout the deal. In these cases, you may have the option to own the car once the contract ends.
Leasing, on the other hand, is different. The car is essentially rented over a fixed period with specific terms, mainly related to mileage limits, service requirements, and the car’s overall condition.
Leasing vs buying a car comparison
| Feature | Leasing | Outright | HP | PCP |
|---|---|---|---|---|
| Deposit required | ✔ | ✘ | ✔ | ✔ |
| Fixed monthly payments | ✔ | ✘ | ✔ | ✔ |
| Mileage limits | ✔ | ✘ | ✔ | ✔ |
| Charges for excess miles | ✔ | ✘ | ✔ | ✔ |
| Depreciation risk | ✘ | ✔ | ✔ | ✔ |
| Own the car during the term | ✘ | ✔ | ✘ | ✘ |
| Option to own the car at the end of the term | ✘ | ✘ | ✔ | ✔ |
| Easy to end the contract after paying 50% | ✘ | ✘ | ✔ | ✔ |
| Different options at the end of the term | ✘ | ✘ | ✘ | ✔ |
| Option to pay a settlement figure to own the car | ✘ | ✘ | ✔ | ✔ |
| Payments could include delivery, breakdown, road tax and a warranty | ✔ | ✘ | ✔ | ✔ |
Is it better to lease or buy a car?
Whether it’s better to lease or buy a car ultimately comes down to your preferences and circumstances. You may find that buying a second-hand car outright is a better move than either leasing, or using a PCP deal to obtain a new car, for example.
When it may be best to lease a car
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-
- You favour monthly lower costs over owning a car outright
- You like to change into a new car frequently
- You use the car for business – you may be able to get lower business lease rates
- Your driving patterns tend to be steady over time
- You want predictable bills and outgoings
-
When it may be best to buy a car
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- You want outright ownership of the car
- You’re happy to stick with one car for multiple years
- You don’t want to be bound by strict mileage limits
- Your financial circumstances may change in the future
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Leasing vs buying a car FAQs
Can you transfer a car lease to another person?
If your lease agreement allows it, you can transfer a car lease to another person, but there are some conditions.
Can you end a car lease early?
There are several ways to end a car lease early, such as paying an early termination fee to end the contract, or transferring the lease (if your contract allows it), allowing you to pass on both the responsibility and the car to someone else.
What are the different car leasing options?
Read our guide on the different car leasing options so you know which suits you best.
Is it cheaper to lease or buy a car?
This is a tricky question with many variables. PCP finance feels like ownership but requires a final balloon payment, while leasing is cheaper with no ownership and stricter terms. Leasing is like renting a house, while PCP is like a mortgage – higher deposit and payments, but with ownership options.
Is leasing a car financially worth it?
Yes, if you prefer lower monthly payments and the flexibility to drive a new car every few years without the hassle of ownership. However, it offers no long-term value since you don’t build equity, and you must adhere to mileage and condition restrictions. If you like having a car for an extended period or want to avoid ongoing rental costs, buying might be a better option.
Car change? Carwow!
Looking for a new set of wheels? With Carwow you can sell your car quickly and for a fair price – as well as find great offers on your next one. Whether you’re looking to buy a car brand new, are after something used or you want to explore car leasing options, Carwow is your one stop shop for new car deals.
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