Lease or buy a car?

Lease vs buy: which option is best value for you?

Dominic Tobin
Feb 26, 2019

Getting the best deal on your next car doesn't always mean choosing the cheapest vehicle available.

Finding the right way of paying for your car could save you thousands of pounds in the long run, or even allow you to afford a car that you thought was out of reach.

One of the key decisions for drivers is whether they should buy their car outright, either with cash or finance, or lease it - effectively renting the car for a monthly cost and then returning it at the end.

The right choice will depend on the type of car you're looking for, your monthly budget and how long you're looking to keep the car. Businesses will also need to consider the ease of reclaiming tax (see below)  Every option should include a figure for the total amount payable, so you can compare costs.

 Scroll down for more information, or click below to search deals and prices on all 54132 cars currently available from BuyaCar.

 

Leasing a car 

Leasing is a long-term rental agreement, and is also known as Personal Contract Hire (PCH). It's offered for new cars and normally brings low monthly payments, compared with other ways of getting a car.

Leases include a mileage limit, which can be altered to suit your use. You'll have to return the vehicle at the end when charges apply for any excess mileage or damage beyond normal wear and tear. You'll then have to find another car, if you still need one.

Personal Contract Purchase (PCP) finance can operate in a similar way. It's available for new and used cars. You borrow the full cost of the car but only repay part of it, so monthly payments are more affordable. At the end, you're can return the car and owe nothing (although excess mileage and damage charges may apply).

You'll also have the option of buying it for the remaining amount that you owe (called the balloon payment). Alternatively, if the car is worth more than this final payment, you can reclaim the difference by trading it in. The money can be put towards another vehicle or returned to you.

 

Buying a car

Buying a car doesn’t mean that you have to pay for it up front. Finance options include Hire Purchase (HP), which spreads the cost of the car over a series of monthly instalments. You become the owner once the final payment is made.

You can use PCP finance to buy a car. As a large part of the cost is deferred until the end of the agreement, monthly payments should be lower than with HP finance. You can make the final "balloon payment" as a lump sum in cash, but you may also be able to refinance it, paying it off in another series of monthly instalments. 

With full ownership of a car (which usually comes once it has been paid for in full), you’ll be able to sell or modify it when you wish. All used cars from BuyaCar are available to buy.

  

Lease or buy a car?

Leasing a car

  • Mostly used for new cars
  • Relatively low monthly payments
  • Simple to regularly change cars
  • No responsibility for car's future value
  • Easy for businesses to reclaim VAT

Buying a car

  • New and used cars available to buy
  • Once paid off, it’s yours
  • No mileage limit or damage charges
  • Able to modify or sell car when paid for
  • VAT less easy to reclaim for businesses

 

Lease or buy a car for the lowest repayments?

If you want a brand new car but don’t think you’ll keep it for more than three or four years, then leasing could be the cheapest option. This simple, straightforward arrangement often results in the lowest monthly payments on new cars.

However, it is also worth comparing the cost of leasing with a Personal Contract Purchase (PCP) quote. Manufacturers typically offer generous incentives to new car buyers taking out PCP finance, including deposit contributions and sometimes 0% interest. You’ll be able to return the car at the end - in the same way as a lease - while also having the option to buy for a set fee. If the car is worth more than that fee, then you can trade it in, using the difference to cover the deposit for your next car, or having it returned to you.

As PCP isn't just available for new cars, you may be able to save by taking out finance on a nearly new vehicle, which aren't readily available to lease. An older used car should result in even lower monthly repayments

 

Lease or buy a car for the best value?

As buying a car ultimately involves paying the full cost, then you will normally pay more overall to buy a car than to lease one.

You can either pay in cash, spread the cost evenly with HP finance, or benefit from low monthly payments and defer the cost of the car to the end, with PCP finance.

However, you will end up with the car, which you can keep for as long as you want, and sell whenever you need to, which will often prove better value than taking out several lease agreements on new cars.

Paying upfront in cash can also be less expensive overall than taking out finance because you won’t face any interest charges (although your money won’t be in the bank earning interest either).

 

Lease or buy a car for business

VAT-registered businesses can benefit from leasing, as they can usually recover 50% of the VAT. This is based on estimates that half of the mileage covered by company cars is for private use. Lease payments can also be claimed as a business expense, so are tax deductible, making it easy to account for.

The system is set up to promote economical cars, and is based on carbon dioxide emissions. You can claim all lease payments for cars that emit up to 130g of carbon dioxide per kilometre (130g/km). The average new car produces 121g/km. For cars with higher emissions, you'll only be able to claim 85 per cent of the repayments as an expense.

You're less likely to be able to reclaim VAT if you buy the car, whether it's with cash or by using finance. At the moment, this includes PCP. Unlike leasing, you are unable to get a partial refund. In order to get all of the VAT back, you'll need to show that a car is used entirely for business purposes and cannot be used privately. This often means that it can't be taken home by employees.

Tax relief is less straightforward too, as you'll need to write down the value of bought vehicles in your accounts. Interest is usually tax deductible.

 

Lease or buy a new car?

New car leases are increasingly popular, thanks to low monthly payments and the simplicity of getting a new model at the end.

PCP finance payments sometimes rival lease instalments because manufacturers tend to offer the biggest incentives and discounts to customers taking out a this type of agreement agreement. With 0% deals especially, it’s often cheaper to buy with PCP than to pay with cash.

However, some of the best new car deals are available on pre-registered or nearly-new cars, which already have a number plate and at least one owner (which is often a dealership). As these aren’t classed as brand new, you can often save thousands of pounds. PCP finance is available, but these aren’t generally available to lease.

 

Lease or buy a used car?

PCP finance allows you to make low monthly payments for a used car and then return it at the end of the agreement (or trade it in if it’s worth more than the final balloon payment). You’re also able to buy it, which means that you can keep your options open.

This type of finance isn’t available for most cars that are more than five years old. Hire Purchase finance is available, so you’ll be the car’s owner once you have made the final payment.

        

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