Lease or buy a car: Comparison and guide

If you’re in the market for a car, it’s important to decide whether you want to buy a new or used car or lease your next motor instead. Whilst both methods have their own benefits and drawbacks, your decision should be a matter of personal preference.

For instance, if you want to use your car as a workhorse without the fear of mileage-based penalties, buying your next car is probably the best option. Meanwhile, if you don’t have the means to buy a car with cash but want to keep your monthly payments as low as possible, leasing is likely to be better for your wallet.

However, before you decide whether to lease or buy your next car, it’s important to understand how these two popular motoring options differ. In this guide, we’ll also cover the advantages and disadvantages of buying and leasing – and when it is best to buy or lease a car.

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What's the difference between leasing and buying a car?

In simple terms, the difference between leasing and buying a car is comparable to that between buying and renting a house. Whether you want to buy or lease a car, or a house, there are finance options available to help you cover the cost.

However, there is an important distinction to make between home and car finance:

If you buy a house with a mortgage, you will be classed as the homeowner. (In this case, the mortgage is a secured loan – and the house is the asset put up as surety.)
With most car finance options (including Personal Contract Purchase [PCP] and Hire Purchase [HP] contracts) the finance company will own the car throughout the contract, although in some cases, ownership will be transferred to you once it is fully paid off.
Of course, if you have sufficient funds available, you can buy a car (or a house) outright and own the asset with no caveats.

Leasing differs from other finance options, as you simply rent the asset over a fixed period. If you lease a car, you may also be subject to certain limitations (typically related to mileage, where you can service your car - and its upkeep). You may be subject to financial penalties if you are found to have breached these conditions.

Most car leasing companies apply charges for every mile travelled once you exceed your contracted mileage limit. You may also be subject to mileage limitations if you choose to finance your car with a PCP contract.

Therefore, if you are leasing a car and suspect that you are going to exceed your mileage allowance, your best option is to notify the leasing company. In most cases, they will increase your allowance and although this will usually lead to higher monthly costs, you’ll avoid a hefty penalty when your contract ends.

Leasing vs buying a car: A comparative table

Condition	Buying outright	HP	PCP	Leasing
Deposit needed	No	Yes	Yes	Yes
Fixed monthly payments	No	Yes	Yes	Yes
Mileage limits/excess mileage charges	No	Yes	Yes	Yes
Risk of financial loss due to depreciation	Yes	Yes	Yes	No
Own the car from the start	Yes	No	No	No
Option to own the car at the end of the term	N/A	Yes	Yes	No
Contract can easily be terminated after paying off 50%	No	Yes	Yes	No
Option to pay a settlement figure to own the car	N/A	Yes	Yes	No
Payments may include extras such as delivery, breakdown, road tax and a car warranty	No	Yes	Yes	Yes
Lower insurance cost	Yes	No	No	No
Build equity over time	Yes	Yes	Yes	No

Leasing pros and cons

Pros

Lower monthly payments compared to purchasing a car on finance.
Short-term leasing options are available, making it easier to change your car on a regular basis.
Maintenance costs are minimal - and you’ll avoid the repair costs associated with aging cars.
You won’t bear the financial cost of a depreciating asset.
Road tax is often included.

Cons

You won’t own the vehicle when the lease ends.
You cannot modify the vehicle.
You will be liable for any wear and tear that exceeds the terms of the contract.
You will have to pay additional charges if you exceed your contracted mileage limit.
A termination fee may be applied if you cancel your contract early.
You may not be eligible to lease a car if you have a poor credit score.

When should you lease a car?

You should consider leasing a car rather than buying one if:

You can’t afford to buy a car outright but want to keep your monthly motoring costs as low as possible.
You use your car for business purposes. (You may be able to get a favourable business lease rate.)
You don’t expect your driving patterns to change over time.

Is there a best time to lease a car?

Affordable lease deals are available throughout the year. However, you might be able to get a particularly good rate when your chosen manufacturer releases a new model, as leasing rates for the previous iteration will go down.

Buying pros and cons

Pros

You’ll own the car outright (or have the option to when the contract ends).
Restrictions on mileage and how the car is used are usually less stringent with car finance plans (and no such restrictions apply if you buy a car outright).
If you finance a car, you have the option to hand it back earlier.
No wear-and-tear charges will be applied.
You are free to modify the car, should you choose to do so.
You have the option to sell your car or part-exchange your car.

Cons

If you choose to buy a car on finance, you’ll face higher monthly payments than you would by leasing it.
Car finance contracts tend to be longer than lease plans, giving you less flexibility to change your car.
You’ll probably have to bear the financial cost of depreciation. (However, certain classic cars buck this trend and rise in value over time.)

When should you buy a car?

You should consider buying a car as opposed to leasing if:

You want to own the car outright.
You intend to keep the car for at least a few years.
Your financial circumstances may change in the foreseeable future.
You want to avoid mileage or usage restrictions.

Is there a best time to buy a car?

Our article ‘When is the best time to sell a car?’ explains how seasonal demand for certain car types affects their value throughout the year. Understanding seasonality can be equally helpful when buying a car.

For example, 4x4, SUVs and MPVs typically sell for more during the colder months, as these cars handle inclement weather better than the most. Therefore, as a buyer, it’s likely you’ll find these cars at more favourable prices during the warmer months when market demand is lower.

Demand for new cars also spikes around the time of the numberplate launches in March and September each year – and knocks down used prices. So, if you’re looking for a used motor at a bargain price, wait for the next numberplate launch.

Buying vs leasing a car – Which is cheaper?

When it comes to whether buying or leasing a car is cheaper, there’s no one clear-cut answer.

Instead, here are some of the variables you should consider when deciding whether to go down the buying or leasing route:

If you choose a PCP contract, you will not own the car until you make the final balloon payment. Therefore, leasing a car is often cheaper than utilising a PCP contract.
If you choose to lease a car, you’ll be constrained by limitations on mileage and wear – and you’ll never own the vehicle.
However, so long as you stick to the terms of your contract, there are typically fewer hidden costs associated with leasing a car.
A car finance plan will typically require a larger deposit than a lease.
Whilst monthly costs are higher for most car finance plans when compared to leasing, you will own the car (or have the option to do so).
Of course, once you own the car, it is entirely your responsibility to keep it roadworthy – and you will no longer have the support of the finance provider.
Buying a car outright can be a great option if you have the means to do so and intend to use the car as a long-term workhorse.
You may also find that buying a second-hand motor outright is a cheaper option than leasing or utilising a PCP plan for a brand-new car.

Prepare to buy or lease your next car with webuyanycar

Selling your car to webuyanycar can help you raise cash towards your next purchase or lease. Here’s how it works:

Enter your reg number into our free car valuation tool.
Book an appointment at a convenient date and time. We have over 500 branches across the UK.
Drive down to your chosen branch for your appointment. The buyer will confirm your valuation and set up the payment if you’re happy to sell.