Should I Buy Or Lease A Car?

The most notable difference between buying a car outright and leasing one, is ownership.
Buying a car means you’re the legal owner of the vehicle, which is reflected in the cost. Buying a car outright can be expensive, so it’s common to use finance products like loans paid back over time, often with interest. Car leasing, or personal contract hire as it’s also known, does not give you ownership rights at any point, but it’s often a cheaper way to get you in the driving seat. The cost of leasing is not fully based on the cost of the vehicle, so you could get into a higher spec vehicle for more affordable monthly payments than you would if you were looking to own it. Jump to: • What options can I use to buy a new car? • What options can I use to lease a new car? • What are the pros and cons of buying a car? • What are the pros and cons of car leasing? • Is it cheaper to buy or lease? • Is it better to lease or buy a car?

There are several options for buying a new car or buying a used car that will give you full ownership, meaning you can use the car without restriction, and sell it on at a later date if you choose.
It’s worth noting that other than a cash purchase, use of any of the finance products mentioned below will require a credit check:

Cash purchase

If you have the amount required in cash, you can buy a car outright. This gives you ownership as soon as the registered owner documentation is completed and means you’ll have no ongoing charges. You will need to be mindful of the vehicle's value as it could appreciate or depreciate over time, meaning that the car is worth more or less than what you paid for it.

Taking out a loan to purchase a car

You can buy a new car using a loan from any finance provider. A loan lets you borrow a set amount from the finance provider with the understanding that you will pay the amount back over time with interest. If you back your loan with a valuable asset (usually a house) then you can get lower interest rates than if you take an unsecured loan. A loan purchase will leave you with monthly repayments, but you will still have full ownership of the car.

Hire purchase

Hire purchase (HP) is a finance product usually provided by a vehicle-specific finance company. Hire purchase effectively lets you rent a car, with the monthly payments going towards the car's value. Once you have paid off the full value of the car at the end of the agreement, ownership is granted.

Personal contract purchase

Personal contract purchase or PCP is another finance product usually provided by a vehicle-specific finance company. Initially, PCP finance works similarly to leasing (personal contract hire). You make an initial payment, or deposit, then pay a set monthly fee. The key difference is that at the end of a PCP agreement you are given several options: • You can choose to pay a balloon payment to cover the car's resale value, which then grants you full ownership of the car when the agreement ends. • You can choose to hand the car back to the finance provider with no obligations but no ownership rights. • Finally, if the car is in good condition, you can choose to roll over the resale value and use it as a deposit on a new model. There are often restrictions on how this value or ‘equity’ as it is sometimes known, can be used on a new finance agreement. Personal contract purchase can seem complicated, but it’s a popular option because it provides lots of flexibility. Find out more on how PCP works in our comprehensive guide.

Personal contract hire

Personal contract hire or PCH is what most people think when talking about car leasing. You choose a car and set the terms of your lease contract at the start. This includes an initial payment, your required annual mileage and the length of the lease term. At the end of the car lease the vehicle is inspected and handed back to the finance provider. This is where personal contract hire differs from personal contract purchase as there is no option to own the vehicle at the end of the contract.

Business contract hire

Business contract hire is similar to personal contract hire, but it is only available to limited companies, sole traders and some other legally-registered businesses. BCH allows companies to recover VAT on some leasing costs and enjoy other benefits like tax allowances. It’s a popular way for companies to hire a fleet of cars without making a large cash payment upfront and dealing with the risks of ownership, such as depreciation.

Pros of buying:

• No limits to the mileage you can drive. • Ability to sell the car on and keep the money, or keep the car long term. • No ongoing payments if bought outright with cash. • No charges for aesthetic damages.

Cons of buying:

• Initial cost tends to be high. • Loan purchase payments will be inflated by interest. • If the car depreciates in value you will lose the shortfall when you come to sell it.• • Not a flexible option if you plan to change cars regularly.•

Pros of leasing:

• Monthly rental payments are usually cheaper than other finance options, as with leasing you’re only paying for the time you drive the car rather than the full value of the car. • Monthly payments are fixed giving you certainty and peace of mind. • New and expensive models are more attainable. • Extra costs are often covered as a benefit (like road tax).

Cons of leasing:

• There is no option to own the car at any point. • End-of-lease charges for exceeding mileage limits and wear and tear can be costly. • It’s not a flexible option so if you need to end your contract early it may cost you. • The car must be returned with no modifications or damage outside of fair wear and tear. For more information on how the process works, take a look at our easy-to-understand guide to how car leasing works

There are lots of variables that can change the cost of a car purchase or lease. Both options have other non-financial benefits and disadvantages that you should weigh up before making a decision either way, and for some people leasing may not be an option because of restrictions imposed by their credit score.
Buying a car outright means you won’t have to worry about monthly payments or interest. You will also get some resale value if you sell it on or use it as a part exchange, but to do this you will need a large amount of upfront capital which is not always possible for all buyers. Buying a car using a finance product offers more flexibility, but this is at the cost of paying interest on the amount borrowed. Buying a car on finance usually results in the highest cost over time and you’re still liable for all damages, maintenance and insurance alongside your monthly finance repayments. Should the unexpected happen and your monthly payments become unaffordable, you may lose the assets that backed your finance, including your new car, and your credit score will be negatively affected. Leasing is often the cheapest option short term if your credit score allows you to take a contract. Because you are not paying the full value of the car over its lifetime, the monthly repayments of a lease deal are often cheaper than most finance products. Extra costs like road tax and maintenance can be included in your deal so there are a few other fees to consider outside of rental payments. However, at the end of a lease agreement, you will not own the vehicle, and if you have not taken care of the car or kept to your contracted duties you may be hit with unexpected charges when the lease ends.

Deciding whether it’s better to lease or buy a car all comes down to personal preference and your personal circumstances.
If you can afford it, buying a car outright means you won’t have to worry about being tied into a fixed contract or loan. It also means you won’t need to make a payment each month outside of running costs, insurance and any maintenance. However, it usually means you’ll need to have more cash upfront and, depending on your budget, may mean you’re more restricted on the model you can afford. If you want to own the car but don’t have the cash, you may be happy to pay higher monthly costs incurred with a loan, knowing you’ll own the car at the end of the payments and be free to sell the car if you wish. If owning the car isn’t a major factor for you, the flexibility leasing provides might be your preferred option. With cheaper monthly costs than many other finance products, it’s often a great way to drive a brand-new car. It also comes with the freedom to return the car and upgrade to a brand-new one every few years. It’s important to think carefully about which means of driving best suits you and what you need from a car day to day. That way, you can choose the right option, minimise any risks to your finances and credit score, and ensure you have the perfect car to drive when you need it.

However you choose to finance your next car, you’ll find great deals at Auto Trader. Choose from our car leasing offers, new car deals and range of car finance options to find the ideal way to pay for your next vehicle.