Is it cheaper to lease a car or buy one?

Could leasing a vehicle be a better option for you than buying one outright? Find out more with our guide.

Key points

  • Whether it's more beneficial to buy or lease a vehicle will depend on the individual circumstances
  • The way you drive and the vehicle you choose are both crucial factors
  • Do your sums with care and don't be swayed by sales talk

When you're in the market for a new car, there are a lot of decisions to make.

Should you buy with cash? Buy with finance?

How about leasing a car for a fixed period rather than buying one?

It's worth considering whether it might actually be cheaper to lease your vehicle, even though that means you won't own it outright and will have to hand it back when you're finished.

How can it be cheaper to lease a car?

One thing to get clear from the start is that this is not a general rule.

Some drivers can save money by leasing their vehicle instead of buying it, while for others it will be far cheaper to buy it with finance.

Admittedly it does seem pretty counter-intuitive that it can be cheaper to lease a vehicle.

After all, if you buy a car then you have a car. You can continue to drive it or sell it, whereas at the end of a lease you have nothing.

But you need to factor depreciation into your sums.

If the gap between the price of your new vehicle and its value after three years is more than it would cost to hire a car during that time, then you've potentially lost out.

How do I know if it's cheaper to lease or buy?

A lot of factors influence whether it's cheaper to buy or lease a car, such as the number of miles you drive and how well the car retains its value.

If it appreciates, buy it. If it depreciates, lease it

J Paul Getty, billionaire oil tycoon

For example, Which? looked at some specific car models † and found in its analysis that, while a VW Scirocco was worth 63% of its original price after three years, a new Ford Mondeo was typically worth just 36% of its initial value.

Because of that, the survey suggested that most people would be better off buying the VW Scirocco on finance, but leasing a Mondeo.

As a general rule, if a car has a good resale value then you're better off buying it. After three years you'd own a valuable asset, whereas with a leased car you'd have nothing.

But if the car plummets in value then it's probably cheaper to lease it, as you won't be bearing the brunt of the depreciation.

See also:

So look at the price of your new car and its predicted resale value after three years.

If you're driving an unusually high or low number of miles then factor that into your sums.

You can use websites like Autotrader to see the approximate value of your vehicle on the second-hand market.

Then you can work out how much those three years of driving will cost you, and compare that to the price of a lease


Just don't forget to factor in the deposit you pay as well as the monthly cost.

Remember that most leasing companies restrict the number of miles you can do in the car in order to protect their investment.

Do you need a new car every three years?

If you don't plan to sell your new car any time soon, then you could be better off buying it.

After all, once you've paid for it you can continue driving it and not pay any monthly amount for your motor.

However, if you've only leased a car then you'll need to either buy one or continue leasing one once you're done.

What about a personal contract plan (PCP)?

There is a sort of middle ground between buying and leasing a car. A personal contract plan means you pay a deposit then pay monthly instalments, but you also owe a 'deferred payment' at the end of the contract if you want to keep the car.

From Covered mag:

When the contract ends, you have a choice.

You can hand the car back to the dealer without making the deferred payment, leaving you with no car but no debt either.

Or you can make the payment and keep the car.

An option is to sell the car privately to repay the final amount owed - if the car is worth more than the debt then you can pocket the difference.

That gives you some flexibility over what you pay; if the car has kept its value then you can keep it or flog it, but you won't pay more than you agreed at the start of the deal. If the car is worth less, you can simply hand it back.

If you return the car it has to be in good condition. You'll also be asked to estimate your miles at the start of the contract - you'll have to pay a penalty if you've exceeded that.

Bear in mind that PCPs are usually more expensive than hire purchase deals, with larger deposits and monthly sums.

You pay for flexibility, meaning that PCPs are unlikely to be the cheapest option.

Does leasing affect your car insurance?

Most insurers are happy to provide cover for a leased vehicle, as this really isn't an unusual way of paying for a motor.

But you do need to make sure you have sufficient insurance; the leasing agency is likely to demand you buy fully comprehensive cover rather than just third party. After all, they need to know that their asset is protected.

Remember, whether you're leasing or buying, one definite way to keep the price of running a car down is to compare car insurance quotes .

From Covered mag:

If you let your insurance automatically renew, then you could be paying far more than you need to.

Gap insurance

If you write off your new car or it gets stolen before you've repaid the finance, the insurance pay out might not be enough to repay the finance company what you owe - that's where Guaranteed Asset Protection (Gap) insurance comes in.

Bear in mind, though, that there have been criticisms of the Gap insurance industry so you should review all your options before committing to a policy.


Category: Credit

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