Leasing a car vs buying

Deciding between leasing and buying a car can be tricky! Below, we explore the two options to help you decide which might be best for your needs and budget.

What's the difference between leasing and buying a car?

When you buy a car, you pay for it in full, which means it's yours to keep. When you lease a car you make an initial deposit and then pay monthly payments for a set term, usually between 2 to 4 years. At the end of the lease, you return the car.

Torn between the two? Here's a quick comparison:

Key differences

• Cost over time: Leasing often costs less upfront, but buying saves you money the longer you own the car. Lease payments usually cover the car's depreciation over a set term. When you buy, you spread that cost over the time you own it.
• Ownership and mileage: With leasing, the car is never yours, and you'll have mileage limits. But you get to drive a new car every few years without the long-term tie-in. Buying means the car is yours to keep or sell freely, with no mileage restrictions.
• Maintenance and depreciation: Lease deals can include routine servicing. But you're still responsible for any damage or wear. If you buy, all maintenance and the car's depreciation are down to you.

Is leasing a car a good option?

It can be a smart move for some drivers. We'll break down the pros and cons so you can decide if it's right for you.

Pros of leasing a car

• Drive a new car every few years. Leasing can let you upgrade to new cars regularly.
• Lower monthly payments. Monthly lease payments are often cheaper than what it would cost to buy a car outright.
• No need to stress about depreciation. There'll be no need to worry over the depreciation of the car or whether it has any re-sale value. Just hand it back over once the contract comes to an end!
• Road tax is often included. The overall cost of your leasing contract can include road tax. So, you might not need to worry about keeping on top of it.
• Maintenance packages. You might be able to add a maintenance package to your lease contract, which can cover things like service checks. So, depending on what your package includes, you might only be responsible for insurance and fuel!

Cons of leasing a car

• Risk of repossession. If you're unable to make the monthly payments, the car could be repossessed.
• Mileage limits. You'll have to agree to an annual mileage allowance. If you go over this,  you might have to pay a fee.
• Early termination fees. If you decide that you want to end your lease contract before the agreed end date, you might have to pay a costly termination fee.

Can I lease a car if I have bad credit rating?

Yes, you can lease a car with a bad credit rating. 

Your options will be fewer, and you'll likely face higher interest rates. Leasing companies also look at your income and the size of your initial down payment.

So, a less-than-perfect credit score doesn't rule you out. Be sure the lease payments, plus costs like car insurance and fuel, fit your budget.

Considerations when buying a car

Pros of buying a car

• Full ownership at the end of the term: The car is totally yours once the car loan is paid off
• No mileage restrictions: You can drive as far as you want without penalty fees
• Can sell whenever you choose: There's no stress when it comes to selling, and it's down to you whether you want to sell it privately or trade it in
• No early-termination fees: Buying a car outright means zero termination penalties, contract lock-ins, or exit charges if you decide to sell, trade, or stop driving
• No wear-and-tear charges: There's no risk of charges because you own the car outright

Cons of buying a car

• Higher upfront cost: Buying requires a large down payment
• Larger monthly finance payments: Monthly loan payments can be high
• Responsible for all maintenance and depreciation: You pay out of pocket for all routine services, tyre changes, and wear-and-tear fixes
• Harder to upgrade regularly: Buying a car locks you into long-term ownership, making upgrades harder and more expensive.
• Full depreciation risk sits with you: Cars lose value fastest in the first few years, so if you sell early you'll lose money

If you're thinking about buying a car instead of leasing, you've got plenty of options to look into. Here's a breakdown to help you see what might be best for you:

• Pay in cash or credit. You can use cash or your credit card to immediately own a car.
• Get a car loan. If you'd prefer, you could consider getting a car loan to pay outright.
• Consider a hire purchase (HP) or personal contract purchase (PCP). An HP contract is where you rent a car with the plan to own it after the final payment. A PCP contract usually consists of a down payment, monthly payments and a larger final payment at the end to own the car.

Car insurance costs

Buying a car feels like a big win, but don't forget the extras. Beyond the car itself, you'll need to sort out yearly insurance, maintenance, fuel, and road tax. If you're using finance like HP or PCP, be honest with yourself: do the monthly payments really fit your budget?

Buying a car is a solid choice if you:

• Have a lump sum ready to go.
• Want to own it outright.
• Drive a lot of miles each year.

Do I need a specialist insurance policy for a lease car?

Leasing a car for work? You may need business car insurance, which works much like standard car insurance but gives you that extra protection for work-related journeys.

Whichever way you plan to use your car, you’ll need to have the right car insurance in place for the full length of your lease. Some leasing companies include insurance as part of the package, but this isn’t the norm, so it’s usually something you’ll need to sort out yourself.

And there’s one important detail to keep in mind: most leasing companies ask for fully comprehensive car insurance. Third-party car insurance only covers damage you cause to someone else’s car or property, whereas comprehensive cover can also protect the car you’re leasing. In other words, it helps keep both you and your leased car covered.

Frequently asked questions