Should You Lease Or Buy A Car?

If you’re in the market for a new set of wheels, deciding whether to lease or buy a car can be tricky. 

Leasing is growing in popularity in the UK as an affordable way to drive high-spec, brand new car models.

On the other hand, buying gives you full control over the car - if you can cough up the large price tag.

In this post, we’ll look at the differences between leasing and buying and the pros and cons of each method, so you can decide which option is right for you.

What is the difference between leasing and buying a car?

Leasing is similar to renting. You pay to have full use of a brand new car during your contract, but you’ll never own it.

During your contract, you pay off the amount the car depreciates. The exact rate of depreciation depends on the car model, your mileage, and damage done to the car, but on average, this is around 40% over 3 years.

This cost to lease is split between an initial rental and your monthly payments.

There are two main types of leasing: personal contract hire (PCH) and business contract hire (BCH). You can read more about how car leasing works in our thorough guide.

When you buy a car, it is your property to do with as you please for as long as you please. You can choose to finance it by paying in full, PCP, hire purchase, or a loan.

The table below neatly sums up the main differences between leasing and buying a car.

The advantages and disadvantages of leasing a car

What are the advantages of leasing a car?

There are many pros and cons of leasing a car. Here are the advantages:

• Low up front payment - you can choose to pay 1, 3, 6, 9, or 12 months upfront as your initial rental.
• Fixed monthly payments - your monthly payments will not change during your contract.
• Brand new car every few years - you always get an unused car fresh from the factory. Short contracts mean you can get a new model with the latest tech every few years.
• Access to high spec cars - since you're only paying off the cost of depreciation, you can afford more expensive models than if you were buying.
• No hassle reselling - the leasing company is the registered keeper of the lease car. When your contract ends, you simply hand the car back!
• Road tax included - the lease cost includes road tax so that's one less thing to worry about! Some deals also include breakdown cover, maintenance, and insurance.
• Tax benefits for business - businesses can apply for tax deductions for their lease.

What are the disadvantages of leasing a car?

Here are the cons of leasing:

• No option to buy - if you grow to love your lease car, there is no option to buy outright.
• No customisation - it's difficult to work out how modifications affect depreciation. This means you can't customise the car after you receive it. Adding a private licence plate is as crazy as you can be!
• Poor deals for poor credit scores - you need good credit to lease a car. If your score is on the low side, you can ask about appointing a car lease guarantor. Otherwise, you're limited to cheaper models at higher prices.
• Potential return charges - you may receive a lease car return charge bill at the end of the lease. You'll get this if you breach your contract or damage it beyond the BVRLA guidelines for fair wear and tear.
• Mileage restrictions - higher mileage means more rapid depreciation. You'll agree on a contract mileage limit and if you go over, you'll be hit with excess mileage charges.
• Penalties for terminating the contract - if you end the lease early, you'll have to pay a penalty. This varies depending on the company and how far into your contract you are.
• No used cars - almost all leasing companies only offer deals for brand new cars, not used. Buying a second hand car is sometimes cheaper than leasing.

The advantages and disadvantages of buying a car

What are the advantages of buying a car?

How does leasing compare to buying a car? Here are the pros of buying a car.

• Full control - you own the car so you can pimp it out however you see fit. No need for permission!
• No mileage restrictions - you can do as many miles as you like. Your only concern is how much it'll depreciate if you sell it on.
• Keep as long as you like - you can keep the car for as little or as long as you like to suit your driving needs and lifestyle.
• No damage charges - you can scrape and bump the car without extra charges. You just need to cover repair costs and consider how it affects resale price.
• New or used cars - you can choose whether to buy a new or used car, depending on market stock and your budget.
• Better for poor credit scores - if you are able to buy outright, your credit score shouldn't impact the price.

What are the disadvantages of buying a car?

Those advantages sound pretty juicy - but you need to take into account the cons of buying a car too.

• Cash tied up - your cash is tied up in the car, which is a depreciating asset. It's basically halved in value after 3 years, so it's a terrible investment.
• Hassle reselling - nobody likes reselling their car. The paperwork. The lowball offers from dealerships. Random people on Gumtree messing you around. It's a horror show!
• Budget may limit model options - your budget may restrict what spec of car you can get. You may have to settle on a cheaper model or trim.
• Higher payments - whether you buy outright or through a finance method, it costs more than leasing. This is because you're working to pay off the cost of the whole car.
• Long term maintenance - if you keep your car for a long time, you'll have increasing maintenance costs.

Is it cheaper to buy or lease a car?

If you plan on getting a new car every 2-6 years, leasing works out cheaper than buying, in almost all cases.

As the examples in the table below show, one lease contract costs under half what it costs to buy. Even if you took out two leases in a row, it still works out cheaper.

If you see yourself keeping your car for more than 6 years, buying would be cheaper.

Let's take a look at a few examples of the cost of buying vs leasing different models (prices accurate as of 11/4/22). 

The following shows personal lease prices for 3 years with 8000 miles.

How do I decide between leasing and buying a car?

If you're still stumped which option is best for you, here are the main questions to consider:

1. How long do you want the car for? If you like to update regularly, leasing is the way to go. If you hold on to your car for the long haul (6+ years), buying is for you.
2. How is your credit score? If you have a score of good or higher, then you'll have loads of competitive options. If your score is poor, buying may be a better choice.
3. How many miles do you need? If you do up to 20,000 miles a year, leasing is a good choice. If you need more than that, you need to calculate where it's more financially savvy to buy.
4. Are you a careful driver? If you treat your car like a newborn baby, leasing is ideal. If you tend to scrape or bump it, buying might be better.

In summary, you should lease a car if:

• You like a new car with the latest tech every few years.
• Low monthly payments are important to you.
• You have a good credit score.
• You don't want to customise it after you get it.

And you should consider buying if:

• You prefer to keep your cars for a long period of time.
• You like to make modifications to your car.
• You have very high mileage requirements.

Conclusion

Leasing is a cheaper option that suits people who plan to keep their car for fewer than 6 years.

We've done comparison posts of leasing vs finance methods if you want to dig your teeth in deeper. We've also analysed PCP vs lease and hire purchase vs lease.

If you're leaning towards leasing, you can save big bucks by comparing car lease deals with Lease Fetcher. We gather prices for personal car lease and business car leasing deals from brokers all across the UK to make your search so much simpler!