Car leasing and other finance options: which is right for you?

Cars aren’t cheap, and it’s not easy to find the money to buy one outright. That’s where car leasing and other finance options come in. By leasing the car, or by borrowing money to pay for it, you can avoid spending too much at once. Some leasing and finance deals include other motoring costs, like servicing or insurance, with the monthly payment for the car.

Car leasing: what is it?

Leasing is an alternative to car ownership. Effectively a kind of long-term rental, you pay a monthly fee to use a car, but you never actually own it. When the leasing or contract hire agreement ends, you hand the car back.

We’re used to paying monthly for our phones, and car leasing works in much the same way. Just like a phone contract, you usually have to pay a bit more upfront (often the equivalent of three, six, or nine months’ rental agreements), then even payments each month for a few years.

Maintenance costs can usually be included for an increase in the monthly payment. That way the annual servicing bill won’t come as a nasty surprise.

What are the alternatives to car leasing?

The type of finance that’s most like leasing is a Personal Contract Purchase, or PCP. You pay a deposit at the start, then a series of relatively low monthly payments.

Where a PCP differs from leasing and personal contract hire is that you can buy the car at the end of the agreement. In fact, you have three choices. You can hand the car back with nothing more to pay, just as you would at the end of a leasing deal. Or you can make one large balloon payment to take ownership of the car. The third option is to use the difference between the balloon payment and the true value of the car as a deposit to start a new agreement.

So, one of the big advantages of a PCP over leasing is flexibility. What’s more, some PCP agreements include the cost of insurance. We’re thinking of Marmalade’s Cars for Young Drivers. By combining car and insurance costs into one monthly bill, these schemes can make a new car surprisingly affordable.

So which is best, car leasing or a PCP?

At the risk of sitting on the fence, it depends.

We’d get quotes for both a lease and a PCP before making a decision. Remember to calculate the total payable a well as looking at the monthly payment.

Both ways of funding a car will have mileage limits. You’ll be hit with an extra payment if you go over the agreed mileage. And both will need a vehicle assessement at the end of the agreement, with further penalties if the car hasn’t been looked after.

While insurance is paid for separately if you go for contract hire or leasing, it can be included with some PCPs. So if you’re going to push us for an answer, we think a PCP will suit more young drivers more often.

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