Lease Purchase vs PCP: Which Car Finance Option Is Best?

Chloe Murphy 5 minutes Published: 01/07/2021

It can be difficult trying to compare different methods of car finance, deciding whether you want to own or hire your car.

Unfortunately, comparing similar forms of finance can sometimes be just as difficult. When it looks like they operate in much the same way, choosing the best option really comes down to the details. 

In this article we take a look at two similar car finance methods, Lease Purchase and PCP. If you haven’t already got an idea of how they work, check out our “What is PCP Finance” and “What is a Lease Purchase?” posts. 

Here we’ll give you a quick rundown of what they are, their top pros and cons, and how you can decide between them. 

What is a Lease Purchase?

In recent years, Personal Contract Hire (otherwise known as leasing), has quickly become popular for its ability to offer high spec cars on a budget, with no need to buy. But there’s a rising alternative to leasing in the form of a Lease Purchase

Contrary to typical leasing, where the concept is based around not owning the car, lease purchase deals are taken out with the aim of buying the vehicle. It works similarly in it’s initial steps, as you’ll still need a decent credit rating for the car lease credit check, and you’re required to pay an initial rental

Beyond that though, it’s pretty much the opposite. You won’t be restricted to mileage limits or BVRLA fair wear and tear guidelines, and you’ll own the car at the end of the agreement. However, in order to maintain the same low monthly installments as typical leasing, it means you’re faced with a sizable lump sum at the end of the contract that’s typically around 20% of your car’s value. 

What is PCP?

Personal Contract Purchase has steadily held top position in car finance methods. 

It works out fairly affordable over the term of your contract, as you aren’t paying for the total amount of the car. 

With PCP, you’re typically expected to pay a deposit of around 10% of the car cost, then the total amount is based on what the dealership or finance company expects the car to lose in value over the duration of your contract. 

If you want to own the car at the end, you’ll have to pay a balloon payment, or you can get a part exchange on a new car, or simply just return the car.

Pros and Cons of each

Though Lease Purchase and PCP deals sound fairly similar on the face of it, there are a few significant differences in what they offer in terms of owning the car and how you can use it. 

Here’s our top pros and cons to consider for a Lease Purchase and a PCP deal.

Lease purchase pros and cons

Pros

  • Low monthly payments

  • Flexible lease terms

  • Affordable higher spec car

Cons

  • Expensive balloon payment

  • Only available for new cars

  • No option to return the car

PCP pros and cons

Pros

  • Low monthly payments

  • Flexibility

  • Regular affordable upgrades

Cons

  • Excess mileage charges

  • Damage and excess wear fees

  • You don’t own the car

Which is right for me?

If you’re still undecided on one or the other, it’s good to think through how each method of finance will affect your budget and plans for the car. We’ve put together the main things to consider when looking at a lease purchase vs PCP.

Do you want to own the car?

The most significant difference between a Lease Purchase and PCP is the ownership of the car. If you’re definitely not keen to own your vehicle then it’s best to avoid a Lease Purchase agreement, as you have to purchase the car. 

With PCP you do have the option to buy your vehicle, but you can also return it at the end of the term if you no longer want or need it. It’s a better option if you’re looking for flexibility, as you don’t need to decide right away.

What can you afford monthly? 

Low monthly payments are an attractive aspect of both PCP and Lease Purchase, but the cost per month could work out lower with Lease Purchase as you’re deferring the greatest cost until the end. 

However, it’s important to keep this payment in mind during your contract term, as it could be easy to end up strapped for cash when the final payment is due.

What kind of car are you looking for?

As Lease Purchase monthly payments are often slightly lower, you could get a higher spec car than you would with PCP. If you’re looking at a make or model that’s slightly out of your means, you’ll benefit from lower monthly payments and time to save, as your greatest payment isn’t until the end of the term.  

If gadgets and high-tech features aren’t at the top of your list, you may prefer to go with a PCP deal. Most dealerships will offer the option to buy a used car, which can help lower your overall cost if you’re on a budget.

How do you plan to use the car?

Though you get the option to purchase at the end of your PCP deal, the majority of drivers tend to return the car. Since you don’t own your car unless you pay the balloon payment, you’ll have a mileage restriction and be required to keep the car in good condition.

With a Lease Purchase you’re eventually going to own the car, so there’s typically no limit on your mileage or conditions on wear.

Alternatives

When you’ve chosen your brand new car, deciding how to pay for it can ruin the fun. If you’ve decided that both Lease Purchase and PCP aren’t right, there are other options for you to choose from. 

If you like the idea of owning your car, a personal car loan could work for you. We’ve done a post on how to get a car loan if you want to learn more. Unlike PCP, you’re immediately the owner of the car, and you can pay it off over greater terms of up to 7 years. Since the money is transferred directly to you, you also have the benefit of buying from wherever you like. You can buy from a private seller, buy your car online, or even buy a car at auction. We’ve got a PCP or bank loan comparison post to help you choose between them.

Another alternative for buying is a Car Hire Purchase deal. You’ll have slightly higher payments than a PCP, but it’s likely to work out cheaper overall as you pay off the total amount faster. 

See all our lease purchase vs other finance types comparison posts:

If you don’t like the thought of owning at all, you may prefer to lease. If you’re not familiar, check out our Ultimate Guide to Personal Contract Hire. At Car Lease Fetcher you can compare some of the best personal car lease and business car lease deals on cars of all makes and models.