Lease vs finance

Both enable you to pay for a car in monthly instalments, but which is best for you? Lease vs finance

BuyaCar team
Mar 11, 2019

On the surface, there's little difference between leasing and finance arrangements: both involve making monthly payments for a car.

But there are crucial differences in the way that they work, particularly when it comes with what happens at the end of the agreement. As a result, there's probably a leasing or finance agreement that suits you: just make sure that you find the right one.

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). However, it tends to be more flexible, with the ability to take ownership of the car at the end, or to extend the agreement. It's also easier to end the agreement early, although it's not always good value to do so.

 

Types of leasing and finance

Leasing does offer flexible terms for brand new cars. You decide:

  • How long you want to rent the car (usually between two and four years)
  • The number of miles that you’ll cover each year
  • An initial amount that you can afford to pay before the car is delivered.

Your monthly payments are then calculated. Interest is not charged. These instalments are often cheaper than if you had taken out finance on the same car. You'll pay the same, fixed, amount each month until the end of the agreement, when you'll return the car. At this point, you will be charged more if you've exceeded the mileage limit or the car has been damaged beyond reasonable wear and tear - which is set out in a booklet that any leasing company can provide.

 

Finance offers even more options. In a similar way to leasing, you can choose:

  • The length of the agreement
  • An annual mileage limit (depending on the type of finance)
  • A deposit amount, which goes towards paying off the car. No-deposit is often an option.

Hire Purchase and Conditional Sale agreements split the full cost of the car into equal monthly payments and a deposit. Once all the payments have been made, you’ll own the car, although the instalments are more expensive than leasing or other types of finance because they cover the full cost of the car (along with the deposit), plus any interest that is charged. More details

Personal Contract Purchase (PCP) involves paying off only part of the car’s value to begin with, plus interest, so the repayments are low, similar to leasing. At the end of the agreement, you can hand the vehicle back without anything else to pay - like a lease. You'll also need to pay extra charges if you've exceeded the mileage limit or there's excessive damage.

You'll also have the option of buying the car for the remainder of its cost. Depending on its value, you may also be able to trade it in for a different vehicle. More details

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. More details

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.

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