The pros and cons of leasing and financing cars

Both are great for when you don’t have enough money to pay for a car outright

How does car leasing work?

Car leasing, also known as personal contract hire, is the process where customers pay monthly installments for a set period of time so they can use the car. They will never fully own the car but by using this payment method, customers can afford a car more easily. 

The customer and the dealer agree on a pre-annual mileage restriction and the consumer pays a pre-contract deposit for their car lease before anything is signed. Most contracts do not cover maintenance fees, but if you chat with your car salesman, you may be able to negotiate a contract that does, but this is dependent on who you talk to. You will have to bring this up yourself as well as this is not in the regular agreement. 

Entering into a car lease contract is comparable to entering into a long-term rental arrangement, and at the end of your lease, you will normally select whether you want to lease another automobile or go carless.

The main thing to remember with select car leasing is the fact that at the end of the contract, you won’t end up owning the car. It’s a great investment for people who don’t want the commitment of owning a car. They may be going through circumstance changes that may affect the need for different types of car, such as first-time parents or people moving house.

Advantages of leasing cars

The main pull for buyers to go into select car leasing is the fact that it is the most hassle-free way to regularly use a car for your personal use. Because of the length of time you may wish to lease the car for, it can curb any major costs associated with other types of select car leasing. 

Another great advantage of going with select car leasing is that they include fairly cheap deposits so it’s still less daunting than making an outright purchase on owning a car. Additionally, there are options to lease a car without a deposit, meaning you can get going with your new venture!

With select car leasing options becoming endless as more people move from making a long-term purchase, you can now lease a car that is better for a more affordable price. 

Lastly, the great advantage of car leasing is that there is no hassle and therefore no stress for you. This is because the car dealership is the registered keeper of the car you’re leasing and so all of the ins and outs are left to them to sort. All you have to do is choose the car, agree on the contract and sign it, and away you go!

Disadvantages of leasing

Select car leasing has attributes that are very attractive for customers, but this doesn’t mean there are no disadvantages to leasing a car. 

Firstly, you need to remember that you don’t own the car yourself, meaning any internal or external changes you may wish to make cannot be made. Although, with all the options for cars available to lease, you will likely meet your perfect match. 

Most car lease contracts do not include maintenance fees, so in addition to the monthly payments, you will have to pay other fees, which can add up quickly if you aren’t careful.  Even so, this is still an overall cheaper option than purchasing a car outright. 

At the end of the contract, there are other fees you may have to pay, for example, if you exceed your agreed mileage limit and if you damage the car, you will have to pay these charges. 

One thing that may put off most customers is that select car leasing is typically only available on new cars, and this may seem exciting to some. Although, because of the mileage and time you will have it for means it will lose its value quickly, and even so, you won’t be able to sell it after your contract ends.

How does car financing work?

Car financing is an umbrella term for a range of options that help you to borrow the money you need to buy a new or second-hand car, it also includes plans to lease your car before you have the choice to own it yourself or not. We will go through the different types of cars on finance available to you. 

To finance a new car, you must borrow money from a lender. But there are a lot of different ways to set up car financing, and they all function differently. You should weigh the pros and cons of each. Luckily we will provide the pros and cons of each so you won’t have to. 

Hire Purchase and conditional sale agreements (also known as HP finance), includes a contract where the client splits the full cost of the car’s value into equal monthly payments, and it includes a deposit before you start making payments. After all the payments are made, you will own the car, and sometimes, depending on how long you’re paying in, you may be required to pay off the rest of the car’s value at the end of the contract with an ‘option to purchase fee.

Personal Contract Purchase (PCP) 

Personal Contract Purchase (PCP) is an excellent financing option because you don’t have to pay the amount equivalent to the car’s true value, you pay what the lender thinks its value is. 

Typically, you will borrow money from the finance company that will help you finance the car, you will only have to pay the difference to what you’ve borrowed and the amount the finance company sets as a ‘balloon payment’ (paying a large final payment if you intend to keep the vehicle). Additionally, you won’t be paying any larger fees at the end of the contract, unless you wish to own it. 

PCP finance works similarly to other financing options because you enter a contract and pay monthly payments over a period of time. Again, you will pay a deposit on the car you wish to finance, this is typically 10% of the car’s price. The typical length of time people’s PCP finance contracts lasts roughly between one and four years. 

As soon as your contract ends, you have three choices: you can start a new contract for another PCP finance plan for another car, go carless or make a final payment to keep the car. It’s a very simple and more cost-effective way to keep the car at the end of your contract, should you wish to.

Pros of financing a car

  • You can make fixed monthly payments that are flexible to suit your budget.
  • Spread the costs with the freedom to change cars more often.
  • It can help to improve your credit score (with hire purchases).
  • You can avoid higher fees at the end of your contract.
  • You can own the car at the end of your contract. 
  • There are options to finance the car without mileage restrictions, unlike with leasing.
  • You can afford better newer cars for cheaper prices.

Cons of financing a car

  • You don’t own the car unless you make a final payment, money troubles could prevent this.
  • HP finance monthly payments are typically higher than PCP and leasing payments.
  • PCP contracts may have mileage restrictions, so if you hand the car back, you may still have to pay. 
  • You can’t modify or sell the car during your contract.
  • PCP finance includes interest payments and damage charges to pay at the end of the contract.


It is up to you what type of financing or leasing option you decide to go with should you wish to partly own a car. We will always recommend you do your research beforehand and many car dealers will have the knowledge for their offers you are permitted to take. 

All information has come from https://www.carloansuk.co.uk/ 

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