Car Leasing Explained – Leasing VS PCP vs HP Finance Guide


When you’re looking to get a new vehicle, there are several financial options open to you. You’ve maybe considered a car lease or PCP but don’t really know what the difference is. Of course, there’s also hire purchase to consider. Each option is going to offer you something and it’ll be your decision to make. Let’s take at the difference between lease and finance options like PCP and HP.

Car Leasing Explained – What Is It?

Car Purchase VS Leasing

If you want to experience a brand-new car without the huge outlay, you may be looking into car leasing. This will let you get behind the wheel in a more affordable fashion. Think about it as renting a car. You’ll pay an initial payment when you agree to lease and this will be followed by monthly instalments. Normally, you can expect to be in a car leasing contract for two to four years. The initial payment is often around two or three months’ worth of payments.

One of the differences between car leasing vs PCP agreements is that you won’t have the option to purchase your vehicle at the end of the contract. So, you won’t own it outright and it’s not known as your property during the leasing contract either. This might be preferable for you if you want to check out a new set of wheels. You just have to return the keys and car to the leasing company. But if you do like the car, you can’t keep it. Yet, you won’t have to face depreciation risk and selling it won’t be a problem or something that you have to think about. Another good thing about car leasing is that you don’t have to pay for any problems with the vehicle. If it breaks down, the car leasing company will pay for it.

A downside is that there can be mileage caps on your car set by your leasing company. There will be rules set out in your car leasing contract and it’s important to become familiar with them to avoid penalties. You can expect around a 10p charge for every mile over the limit. This soon adds up. At the end of the contract, you should be aware that a leasing company can fine you if there are excess problems with the car. Some wear and tear are expected after a couple of years. But any excess wear and tear will come out of your pocket.

Do you have a good credit score?

This is going to be necessary to complete a car leasing agreement. This will be checked prior to signing the contract. So, if you aren’t in a good place with your credit, this might not be an option for you. But remember that any credit score check doesn’t include considering whether you can agree on the monthly payments. It’s going to be up to you to make sure you can or incur penalties.

Do you like to modify your vehicle? Unfortunately, this isn’t something that you can do with a lease car. Even something as simple as a tow-bar isn’t allowed. The only way you can do this is by asking the leasing company to make the modifications before you agree to the contract.

Car Leasing vs Personal Contract Purchase (PCP)

Car Hire Purchase Finance Guide

You may be wondering what the difference is between leasing a car and taking a PCP deal. So let’s look at PCP v lease. Indeed, they can look similar when you first look at them. You make an initial payment for the car and then pay monthly instalments in order to enjoy it. But there is a big difference between car leasing PCP. With a PCP deal, you’ll be given the option to buy the car you’ve been using or hand it back at the end. You’ll be able to do this by making one last payment, which is often referred to as a ‘balloon payment’. This can also be called the Guaranteed Minimum Future Value. PCP also applies to used cars and not just new ones. Depending on the company, there can be no-deposit options available that can help you financially.

A good thing about a PCP agreement is that you’ll be able to voluntarily terminate the agreement under certain circumstances. If you’ve paid at least 50 percent of the total finance amount, you’ll be able to end the agreement. For example, you may choose to do this if your financial situation suddenly changes. This simply can’t happen with a car leasing agreement without losing your money.

Although car leasing is like a rental agreement, PCP differs in that it’s a finance agreement charging interest. So, you’ll have to weigh up whether it’s the best option for you in a financial sense. If you have a poor credit score, this could affect your chances of getting a PCP. But this is also the same as a car leasing contract.

Car Leasing VS Hire Purchase (HP)

The main difference you’ll find between hire purchase (HP) and a leasing agreement is with the ownership of the car. After you’ve paid the initial deposit and completed all of the monthly instalments on an HP, the car will belong to you. Thus, you can be the owner of the car at the end unlike with a leasing contract. If you like the car and this is your aim, then it’s going to be a good option for you. Another great thing about hire purchase is that you don’t have to worry about excess mileage charges. This can be annoying and occur with car leasing and PCP. But it’s not something that applies to HP. This means you’ve got the freedom to travel around as much as you like without there being any limitations.

The downside to HP is that you’ll probably pay more when it comes to monthly instalments. You’ll be paying off the entire value of the car. But if you do want to own the car outright, this is something you can weigh up.