It’s nice to get a brand-new car every few years, and both leasing and buying your car can put the latest model on your driveway with fixed monthly payments and include the peace of mind of the manufacturer’s warranty. We’ve explored some examples too, and leasing a car, for 2-4 years can sometimes cost you less overall than buying it outright or financing with PCP finance. More people are starting to choose to lease a car instead of buy it, but which is right for you?
Leasing vs PCP finance
Over 80% of new car buyers choose to drive away their new car by using either PCP finance or Leasing – also known as Personal Contract Hire. We’re going to compare the two options, so what are the main differences?
How do they compare?
Personal Contract Purchase (PCP)
For an initial deposit and subsequent monthly payments you can finance a vehicle on a PCP agreement. At the end of your term you have the option to return the vehicle or buy it outright for a single lump sum called a balloon payment.
Leasing (Personal Contract Hire)
Similarly, for an initial deposit and subsequent monthly payments you can hire a vehicle for a set time period on a leasing agreement. At the end of the term you simply hand the vehicle back to the dealer, but you won’t be given the opportunity to purchase it.
Let’s look at some example numbers
We’ve looked at five of the most popular SUV’s on the market today to help illustrate the point that you should consider leasing as one option for driving away in your new car! These are just example calculations with prices correct at the time of publishing – you should ask the dealer for tailored quotes to compare if you choose to buy.
In four of five examples, Car Leasing has a lower true monthly cost than a comparable PCP calculation. The true monthly cost calculation takes into account everything that you have to pay (e.g. deposits, depreciation, any interest or tax) for both options, and divides them by an equal time period. The important thing when deciding whether to buy or lease a vehicle is the Residual Value (RV) – meaning the expected value of the car after a period of time. If the vehicle is expected to hold its value well, then you’re probably better off purchasing the vehicle or financing it. If the value is likely to fall more quickly (and you plan to change to a new car after your repayment period), then you might be better off leasing to avoid the depreciation risk. Let’s take a deeper look into this true monthly cost using the Skoda Karoq as an example.
Skoda Karoq – Case Study
The Skoda Karoq is a popular family car that’s easy to drive, and feels well built for the price. But should you buy it outright, use PCP finance, or Lease it? Here’s a detailed look at how we’ve estimated the “True monthly costs” above, using the Karoq as an example:
In this case, Leasing comes out on top, even above paying cash. This may seem counterintuitive, but it’s often because the buying power of leasing companies means they buy cars from the manufacturer at high discounts – and then pass the savings on to their leasing customers. Also, with personal lease deals, VAT is paid on the monthly hire amount rather than the total cost of the car – so this can lead to savings overall. Not to mention the road tax which is most often included in the lease cost too.
Remember, the numbers in our calculations are just estimates designed to help you understand how to compare finance options. Your carwow dealer can easily provide you with personalised quotes.
In summary, leasing can be a great option and in some cases might be the most cost effective – but this depends on a number of factors. PCP finance is still the most popular in the UK for new cars, and it’s well worth exploring all options – the most cost effective one can vary quite a lot depending on the make or model that you’re buying, and whether you want to own the car. And of course, as with any finance, always be sure that you can comfortably afford the monthly payments for the contract duration.
Compare the latest deals for leasing your next car through carwow.
Compare leasing and buying deals
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