Choosing between leasing or financing a car will depend on your needs and circumstances. In both instances, you’ll be able to use a vehicle as you pay a series of pre-determined monthly instalments – but the main difference between leasing and financing a car is whether or not you end up the vehicle’s owner.

As such, there’s no right or wrong answer to the question of whether you should lease or finance a car – it’s all about your priorities. Read on to find out more.

Car leasing and car financing – what’s the difference?

Leasing and financing a car may sound similar, but they do have key differences.

The main difference between leasing and financing a car is ownership. When you lease a vehicle, you’re essentially borrowing the vehicle from a dealer for a specified period of time – usually anywhere from 12 months up to 60 months. You’ll pay a monthly fixed amount which usually includes service and maintenance fees. At the end of the lease’s term, you hand the car back – you’re never its owner.

With car financing, however, you have the option of owning the car at the end of your finance term. Much like leasing, you’re making a series of fixed monthly repayments over a pre-agreed time period, after which time you have the option of making a final payment, making you the car’s legal owner.

Buying a car outright is the other option when buying a car – but you need savings or a personal loan in order to finance this.

Should you lease or finance a car?

As with anything, whether or not leasing or financing a car is most appropriate for you will depend on your priorities and preferences.

Leasing a car – the advantages

  • When you lease a car, your monthly repayment amount will typically cover service and maintenance costs.
  • As you are never the vehicle’s owner, you don’t have to worry about the car depreciating in value over time.
  • If you like to change your car frequently, leasing is a far more appealing option.
  • Because you won’t own the vehicle, you also don’t have to worry about reselling it at the end of the lease term.
  • If you use your car for business purposes, you may benefit from greater tax write-offs with a lease (unless it’s a luxury vehicle).

Leasing a car – the disadvantages

  • There’s usually a mileage limit for leased cars, and you do have to pay a penalty if you exceed this, so if you’re a driver of long distances, leasing may not be for you.
  • Although service and maintenance costs are covered, if you cause any serious damage to the vehicle, you may incur further charges.
  • You don’t ever own the vehicle.
  • You may also incur charges if you want to end the lease deal early.

Financing a car – the advantages

  • Car financing tends to be more flexible than leasing a car. Similar to leasing, you can use the length of the agreement, and you may be able to decide on an annual mileage limit and deposit amount.
  • Car finance is typically available on both new and used cars, whereas leasing is only available for the newest vehicles.
  • If you’re after the lowest possible monthly repayments, car finance on a used car is the best option.
  • At the end of car finance, you’ll own the car. Depending on which finance you’ve gone for, you may need to make a final payment, after which you are the car’s legal owner.

Financing a car – the disadvantages

  • With PCP finance, you can choose whether or not you want to own the car at the close of your deal. However, as with leasing, if you opt to return the car, but have exceeded the mileage limit or caused excessive damage to the car, you will incur extra charges.
  • You are locked into a repayment schedule, so you need to ensure that your financial circumstances aren’t likely to change whilst you’re repaying your car finance. Missed repayments will affect your credit score – though there are ways of securing car finance even with a poor credit rating.

Talk to us about car financing and leasing

If you still have questions about whether car finance or a car lease is best for you, get in contact with My Car Credit on 01246 458 810 or email enquiries@mycarcredit.co.uk.  

Representative APR 8.9%

Evolution Funding Ltd T/A My Car Credit

My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 8.9%, annual interest rate (fixed) 8.86%, 47 monthly payments of £184.94 followed by 1 payment of £194.94 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,387.12, total amount payable is £8,887.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!