Is it better to lease or buy a car?
Buying or leasing a car is a big decision, our guide explains the different options and how they work
Key takeaways
Leasing can be a good option if you're wary of a long term commitment and like to drive
new cars every few years
The catch is that leasing means you're bound by a mileage limit and are paying for a vehicle you'll never own
Buying a car is less restrictive and you'll own the car outright. You'll also have the option to drive unlimited miles, and the freedom to sell whenever you like
But if you're buying, you'll need be mindful of depreciation, road tax and maintenance costs
How does car leasing work?
Leasing a car is akin to a long-term rental. You pay an initial deposit followed by fixed monthly payments for the duration of your lease agreement.
Once your contract ends, you simply return the car, provided it's in good condition and within the agreed mileage limit.
Think of it as a way to enjoy the latest models and brand new vehicles without the commitment of ownership.
For a more detailed breakdown, our guide on car leasing covers all the ins and outs.
What's the difference between car leasing and buying?
The main difference between vehicle leasing and buying is ownership. Leasing is ideal for those who enjoy driving a new car every few years and prefer predictable budgeting without the upfront costs.
Lease agreements typically include warranty coverage and exclude MOT tests for the first three years, adding to the convenience.
On the other hand, buying a car, whether outright or through finance options like PCP or HP, means larger upfront costs but results in ownership. And gives buyers the freedom to sell the vehicle.
What are my options for buying a car?
If you're leaning towards purchasing, you have several paths to consider:
Cash or credit card: Use your savings or credit card for immediate, full ownership.
Car loan: A personal loan can facilitate ownership, but you'll need a solid credit rating
to get the best rates.
Hire Purchase (HP): This method involves renting the car with the intention of owning it after the final payment.
Personal Contract Purchase (PCP): Start with a down payment, followed by regular instalments, and a final balloon payment if you decide to own the car.
Pros and cons of buying a car
Buying a car brings the joy of ownership, the freedom to drive unlimited miles, and the option to sell whenever you choose.
However, it's not without its drawbacks. Depreciation, maintenance costs, and the responsibility for road tax are all part of the package.
Plus, the initial financial outlay can be significant.
Pros and cons of leasing a car
Leasing offers a lower upfront cost, fixed monthly payments, and the pleasure of driving a new car every few years.
There's no need to worry about selling the car or its depreciation. However, leasing comes with mileage caps, potential fees for damages, and can be challenging if you have a bad credit score.
When does buying a car make most sense?
Consider buying if you:
Have a significant lump sum available.
Want a car that will retain its value.
Drive extensively, exceeding 30,000 miles a year.
Desire ownership and have a poor
credit score
.
When does leasing a car make most sense?
Leasing might be your best bet if you:
Prefer driving a new car for a fixed monthly cost without the maintenance worries.
Dislike the hassle of selling.
Enjoy having a variety of options.
Want to drive a new model every few years.
What's the difference between leasing and financing a car?
Financing a car, whether through HP or PCP, is a journey towards ownership. Leasing, however, is purely a rental agreement with no end goal of owning the vehicle.
It's crucial to weigh the terms, mileage allowances, and potential penalties for missed payments when considering these options.
Can I end a car lease early?
You can. But deciding to terminate a car lease early can be an expensive move, with fees and charges that can add up quickly.
Ensure you're comfortable with the commitment before signing a lease agreement to avoid these penalties.
What are rent-to-own car schemes?
Rent-to-own schemes are an alternative for those with poor credit, allowing you to rent a car while your payments contribute towards eventual ownership.
However, these schemes often involve older cars with higher mileage and lack the warranty benefits of traditional leasing.
Other useful guides
Compare car leasing deals with MoneySuperMarket
Comparing car leasing deals is free, fast and simple with MoneySuperMarket and our specialist partner Moneyshake.
When you compare with us, you can sift through various options based on your budget, preferred make and model, or mileage requirements.
The deals you'll find include free delivery, road tax, and a full manufacturer's warranty, ensuring you get the most bang for your buck.
Author
Victoria Russell
General Manager - Commercial
Vikki has worked across financial services for over 20years, and for the last 15 years, created and nurtured a career within MoneySuperMarket Group, leading to her current role as General Manager for...
