Lease vs finance

Jul 31, 2018

Both lewasing and finance arrangements involve making monthly payments for a car, but underneath, they are both very different.

Leasing is a rental agreement: you commit to make payments over a set term and at the end you return the car. There is a mileage limit and you’ll pay a penalty if you exceed this. Extra charges also apply for excessive damage - just like a rental car.

Finance involves borrowing money, so you’ll be paying interest (unless you have a 0% interest deal).


Types of leasing and finance

There’s really only one type of leasing but it’s usually flexible. You decide how long you want to rent the car (usually between two and four years) and the number of miles that you’ll cover each year. Your monthly payments are then calculated. Before your car is delivered, there’s usually an initial rental fee to pay.

There are more options when it comes to finance:

Hire Purchase and Conditional Sale agreements split the cost of the car into equal monthly payments and a deposit. Once all the payments have been made, you’ll own the car.

Personal Contract Purchase (PCP) involves paying off only part of the car’s value, so the repayments are low, similar to leasing. At the end of the agreement, you can hand it back without anything else to pay - like a lease - or buy the car for a large one-off payment. Depending on its value, you may also be able to trade it in for a different vehicle.

Lease Purchase is typically used for vans. It offers low monthly payments like PCP but you’re committed to buying the vehicle at the end of the agreement.


Cars available on lease and finance

Leasing is normally only available for new cars, whereas finance is offered on new and used vehicles.
Manufacturer finance generally offers the lowest interest rates and best value if you’re buying new. For used cars, there are likely to be cheaper options. For example, BuyaCar works with a panel of lenders to secure a competitive rate.

What happens at the end of lease and finance agreements?

Additional charges for lease and finance agreements

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