Should I lease, finance or buy a car outright?

If you want to purchase a brand-new car, you're probably considering the best way to pay for it. If you're in a financial position to buy the car outright, this can be a great option for several reasons. However, if you want to spread the cost over monthly payments, it’s likely that you’re being faced with the option of either financing or leasing a car.
With financing, you pay monthly installments for the vehicle, and you have multiple options at the end of your contract, such as paying a balloon payment to own the vehicle or handing the car back. With leasing, the lease provider is the registered owner of the car, so you return the car once your leasing contract ends. To summarise, financing with a balloon payment lets you own the car at the end, while leasing involves paying for use and returning the car when the contract ends. The key distinctions between financing and leasing involve ownership rights, mileage restrictions and a financial obligation at the end of the contract, but this will depend on the type of finance agreement. Understanding the ins and outs of both options can help you make the right decision that best suits your needs.

Car Leasing explained:

Leasing put simply is usership, rather than ownership of a vehicle. You don’t need to worry about depreciation or selling the vehicle when you’re ready to move on to your next car. You get a brand-new car for an agreed period of time - most car leases are between two to four years. You can lease a car for personal use which is known as Personal Contract Hire (PCH) or on behalf of your company, known as Business Contract Hire (BCH). Both lease options involve a down payment at the beginning of the contract, which is calculated as multiples of the monthly rental payments in your contract. It’s important to keep in mind that despite the fixed monthly payments, you could potentially find that at the end of your lease you have some additional costs. As the car doesn’t belong to you, it will belong to the finance company, and they’ll expect it back in a certain condition. So, if you damage the car beyond the expected wear and tear, or go over your agreed mileage, you could incur a cost, which is something to consider when making the decision to lease a car. It’s also worth remembering that both finance and leasing are subject to you having a suitable credit score and being able to afford the payments, as well as meeting the funders requirements.

• You get the flexibility to apply and lease a brand-new car every two – five years
• Warranty, roadside assistance, road tax are usually included in the cost of the lease • No residual risk - the residual value of a car is an estimate of how much it will be worth at the end of your lease contract, which introduces some financial risk if the value decreases significantly. However, since you return the car at the end of your lease, this is not something you need to worry about • You’re committed to the car only for the duration of the contract • If you choose to factory order, you can fully customise your car • You won’t have to worry about a large final payment at the end of your agreement; you simply return the car

Car Financing explained:

Financing a car allows you to buy a vehicle without paying outright. Buying a car on finance is worth exploring if you want the luxury of owning a brand-new car. There are two main finance options - personal contract purchase (PCP) or hire purchase (HP). HP involves spreading the full cost of the vehicle over your monthly payments, so you’re not left with a big sum at the end. With PCP, you pay less monthly to have a bigger payment at the end, if you choose to buy the car at the end of your contract – this is known as a balloon payment. As mentioned above in regards to leasing, the same applies if you decide to finance a car. All finance agreements are subject to your credit score and affordability checks, It’s also worth remembering that each individuals finance is subject to your corresponding credit score and outcome of affordability checks – this applies to any type of financial agreement when you are loaning money, so in this case both finance and leasing contracts. Learn more about PCP Learn more about HP

• Financing is a great option if you believe owning a car is essential for you
• You face fewer limitations, such as mileage caps and restrictions on vehicle conditions • You can own the car outright • There is slightly more flexibility regarding early termination or selling on the car • If you choose to factory order, you could fully customise your car

Financing or leasing a vehicle are great options if you’re looking to spread out the cost over a long period of time, but if you are in a financial position where you can buy a car outright, this also comes with some great benefits.

• Full instant ownership
• Flexibility of choosing to sell or trade in • No monthly payments or costs – you can drive away knowing you don’t have any financial obligations tied to the ownership of the car • No credit checks or credit score implications

All three options will give you a way to get on the road in a brand-new car. With financing or leasing, this tends to offer a flexible and often a more affordable way to drive a brand-new vehicle.
Buying a car outright allows you to avoid monthly payments and interest charges, giving you full ownership immediately and no monthly financial obligation. While financing gives you the option of potentially building equity by owning the car at the end which would result in long-term cost savings, leasing removes the risks of commitment of ownership. By avoiding a potentially large balloon payment and simply returning the car at the end of the lease, you can reap the rewards of a brand-new car while maintaining financial flexibility. If you think car leasing is a good fit for you, explore our extensive selection of lease deals on Auto Trader.