Car Leasing vs Car Finance: What’s Better?

Make the Right Call For Your Next Car

Choosing between leasing and car finance in the UK comes down to what you value most: the lowest possible monthly cost, the freedom to own, or the flexibility to change cars regularly. Leasing, typically Personal Contract Hire, often delivers the smallest monthly payments because you are covering the vehicle’s depreciation over the term rather than building ownership. You hand the car back at the end and there is no balloon payment to worry about. For many drivers managing tight monthly budgets amid fuel, insurance and tax pressures, that predictability is compelling.

Finance options look different. With PCP, monthly payments are usually higher than leasing but you keep choices on the table. At the end you can return the car, pay the guaranteed minimum future value to own it, or use any equity to move into another deal. HP is more straightforward still: pay the balance over the term and the car is yours, typically with the highest monthly repayments but no large final balloon. Outright purchase avoids interest altogether but ties up cash and places depreciation risk squarely on you.

Interest rates matter. Typical UK car finance APRs for 2025-26 sit around 6-9% for good credit and can reach double digits for weaker profiles. Larger deposits tend to reduce monthly costs across leasing and finance. Mileage also matters. Lease contracts come with strict annual limits and excess charges if you go over. PCP has limits too, though can be a little more forgiving, while HP and ownership remove mileage caps once the car is yours. If you clock up rural motorway miles, those limits deserve close attention. If you are an urban driver staying comfortably within a cap, leasing’s simplicity may be hard to beat.

In short, leasing favours predictable, shorter-term use under warranty with low running hassle. PCP suits those who may want to own but value flexibility. HP and buying are for keepers. The right choice aligns monthly affordability, usage patterns and long-term plans.

Who Benefits Most

If you prioritise the lowest monthly payment and prefer to refresh your car every two to four years under full manufacturer warranty, leasing offers clear advantages. You avoid resale risk and never face a balloon bill.

If you might want to keep the car, PCP keeps your options open, allowing you to return it, purchase via the final payment, or trade into a newer model using any equity. For long-term keepers, HP or buying outright often wins on total cost over many years, especially once finance ends and mileage limits disappear.

Drivers with high annual mileage or frequent long trips may find leasing limits restrictive. Those seeking an asset to modify or sell should consider HP or buying.

Your Main Routes

1. Personal Contract Hire (Leasing) - lowest typical monthly cost, must return the car at end, strict mileage caps, no ownership.

2. Personal Contract Purchase (PCP) - mid-range monthlies, optional balloon to own, potential equity, mileage limits apply.

3. Hire Purchase (HP) - higher monthlies, you own the car after the final payment, no balloon, no mileage limits after ownership.

4. Outright Purchase - pay in full, full ownership from day one, no interest, full depreciation risk.

What It Costs, What It Means

Can You Qualify?

Eligibility varies by lender and product, but a solid UK credit history and stable income help secure more competitive APRs. For finance in 2025-26, strong-credit customers often see rates in the mid-single digits, while average or weaker credit profiles can face higher double-digit pricing. Expect a credit check, proof of address and income, and a UK driving licence. Larger deposits can reduce monthly costs whether you lease or finance, though remember that lease initial payments are not returned and do not create equity.

Leasing agreements set annual mileage allowances and condition standards at handback, which means urban drivers who travel less may find them a neat fit. If you are commuting long distances across rural routes, heavier mileage could push you towards PCP, HP or ownership to avoid excess fees. If you prefer to keep cars beyond the warranty window, HP or buying outright may offer better long-run value.

As a UK-based broker, Kandoo works with a panel of lenders, helping you compare options quickly and responsibly. That means you can align credit profile, deposit and term length to secure a deal that matches your budget and driving habits.

From Quote to Keys: The Steps

1. Set your monthly budget and deposit comfort.

2. Check your mileage and contract length needs.

3. Compare PCH, PCP, HP quotes side by side.

4. Review APR, fees, and total payable figures.

5. Confirm credit check and documentation requirements.

6. Choose vehicle, spec, and delivery timing.

7. Sign the agreement and arrange insurance.

8. Receive the car and keep within terms.

Quick View: Strengths and Trade-offs

Read This Before You Sign

Think about how long you plan to keep the car and how many miles you actually drive. Lease agreements are rigorous on mileage and condition, and early termination can be costly. PCP provides welcome flexibility at the end, but you must be comfortable either paying the balloon or returning the car if values shift. HP and buying remove mileage concerns yet expose you to depreciation once warranties expire. Always compare total payable, not just the monthly figure, and test different deposit levels to see how costs change. If you are exploring an EV, consider that leasing and salary sacrifice can deliver strong tax and cost benefits over a three-year horizon, with no resale hassle.

Alternatives Worth Considering

1. Salary Sacrifice EV schemes via your employer for potential tax advantages.

2. Personal loans to buy outright while shopping bank rates.

3. Certified used cars on HP for lower purchase prices.

4. Car subscriptions bundling insurance, tax and maintenance.

FAQs

Q: Is leasing always cheaper per month than finance? A: Often yes, because you pay for depreciation only, not ownership. But it is not always cheapest overall. Compare total payable and excess mileage risks before deciding.

Q: What APR should I expect in the UK now? A: Good credit customers commonly see around 6-9%. Rates can be higher for average or poor credit. Larger deposits usually lower monthly costs across products.

Q: What happens at the end of a PCP? A: You can return the car, pay the final balloon to own it, or use any equity to start a new agreement. Your choice depends on budget and market values.

Q: Are mileage limits a problem on leases? A: They can be if you drive more than agreed. Excess charges add up quickly. High-mileage drivers often prefer PCP, HP or ownership to avoid penalties.

Q: Is leasing good for EVs? A: Yes. Two-to-four-year leases keep you in the latest tech under warranty and avoid resale risk, which is useful with rapidly changing EV values and features.

Q: Do I build equity with leasing? A: No. Initial and monthly lease payments do not create equity. If building an asset matters, PCP with a balloon or HP towards full ownership is more suitable.

How Kandoo Can Help

Kandoo is a UK-based retail finance broker, connecting you to a panel of reputable lenders. We help you compare PCH, PCP and HP options side by side, clarify total costs, and tailor deposits and terms to your budget and mileage. Our goal is simple: clear choices, fair rates and a smooth path to the right car for you.

Important Information

All finance is subject to status and affordability. Terms, APRs and offers vary by lender and may change. Consider total cost, mileage limits and early termination fees. This guide is for information only and does not constitute financial advice.