When it comes to getting behind the wheel of a new car, PCP or Lease are two of the most popular methods. Both are viable options for buying or renting a new car, and we’re here to help you decide which the best option is for you. It will depend on your circumstances, the type of car you want to drive and the sort of financial outlay you want to make, both upfront and in terms of monthly payments, as well as any options to own the car.
So, without further ado, we’ll compare PCP vs lease car deals, so you can make the most informed decision possible.
Car leasing is also known as Personal Contract Hire. You can either enter into a personal car lease or a business car lease and while there are slight differences, the core principles are the same. For a contract hire agreement you’ll never actually own the car, which for some may be off-putting, but it actually adds an excellent amount of flexibility into your agreement. Instead, with car leasing, you’ll loan the car (rather than the money) for a set period of time, usually 2-4 years.
You’ll start with an initial payment, sometimes called a deposit, that can be as low as one monthly instalment. You may often see the initial payment options described as 4 + 23, or 8 + 35. This describes the size of the initial payment plus the number of monthly payments.
You’ll pay a fixed amount each month for the duration of your agreement, and that amount won’t change at all. You’ll often have your maintenance & road tax costs wrapped up in the deal too, so there are no nasty surprises. Once the term ends you simply return the car and keys and can either take out a new deal or just walk away.
PCP, otherwise known as Personal Contract Purchase, is another form of car finance that many dealers can offer. It’s essentially a car finance loan.
You won’t be covering the full price of a car, but after you’ve put down a deposit you’ll need to cover the amount that the financing company feels the car will lose in value over the course of your agreement, with interest calculated based on your lending conditions on top.
Then, at the end of the deal, you have the option of owning the car if you can cover the balloon payment. This is based on the guaranteed minimum future value (GFV) of the car that was agreed at the start of the term with the leasing companies. This balloon payment can be substantial for some cars and deals.
The optional balloon payment will be decided by the finance company at the very start of a deal. The monthly repayments for the PCP deal is the estimated difference between the retail price of the car from when you first receive it (plus interest) and its value at the end of the contract.
So is it better to lease or PCP a car? We understand if you are still a little confused. These two types of car finance are actually more different than they may appear, although both have fixed monthly payments and other similarities. To break it down, we’ve created the handy table below. While this highlights the overall differences, there are also some financial differences in terms of overall cost that will differ.
|
Car Leasing |
PCP |
|
|
Up front initial payment or deposit |
✅ |
✅ |
|
Fixed monthly payments |
✅ |
✅ |
|
Interest charged on repayments |
❌ |
✅ |
|
Mileage allowance |
✅ |
✅ |
|
Maintenance package |
✅ |
✅ |
|
Road Tax & Breakdown package |
✅ |
❌ |
|
Charges for excess wear and tear |
✅ |
✅ |
|
Depreciation risks |
❌ |
❌ |
|
Own the car outright automatically |
❌ |
❌ |
|
Balloon payment for option of ownership |
❌ |
✅ |
|
Early pay off charges |
✅ |
✅ |
|
Secured against an asset |
✅ |
✅ |
|
Low (zero) deposit options |
✅ |
✅ |
Everyone’s situation is different, and that means that leasing may be the best option for you when you’re looking for a brand new car. Some examples of this include:
Car leasing is one of the best ways to drive a brand new car every few years. As you can just hand your car back and enter a new deal, it gives you the chance to drive new cars at very affordable prices.
Although you can have a new car every few years, it is important to remember that you’re effectively permanently paying a monthly cost and in “debt” for as long as you are taking out a car lease finance option.
Many car lease deals allow you to roll your maintenance and service costs up into your monthly payments. This means that as long as you don’t go over your annual mileage, or have excess wear and tear, you won’t face any additional costs. All Car Leasing can offer Maintenance and Servicing on all car lease deals as an optional extra.
A big worry for many is what to do with a car that’s depreciated in value once they’re done with it. With a car lease deal you return the car at the end of the agreement, and that’s it, it’s out of your hands. This means you haven’t got to worry about selling it or its depreciated value.
Knowing exactly how much you’re going to be paying out each month is incredibly important. Being able to keep costs fixed, with the maintenance included, allows you to plan effectively and know exactly how much you’ll be paying out each month.
With a PCP finance agreement you loan money but with a car lease agreement you loan the car.
This means that if you take a PCP car finance package, and then do not take the ownership option/balloon payment at the end of the term, you can potentially lose money when compared to leasing.
For example, if you take out a PCP finance option for 3 years, and then choose not to take the optional balloon payment at the end of the contract to own the car outright, you’ve paid for the depreciation costs, interest and road tax. Whereas with car leasing, you’re only paying for the depreciation of the vehicle set by the finance company.
Generally PCP is better for you if you really want to at least have the option of owning the car at the end of the agreement, but there are a few other circumstances too. PCP is usually available for new and used cars.
The big one with PCP is the option to pay a final payment to own the car at the end of the agreement. This can often be a large fee, and it’ll be agreed at the beginning of the term based on the guaranteed future value, which will be calculated by the lender. Still, though, it’s a good option if you at least want to consider owning the car.
Another advantage of the optional final balloon payment to own the car is that you know the full history of the car so it is much better than buying a used car with an unknown history.
As you’re only covering the difference between the deposit and the guaranteed future value at the end of your agreement, costs can be lower for a PCP deal than some other finance deals on new cars.
As the amount you have to pay is guaranteed at the beginning of the deal, you won’t have to worry about a change in value. This does however mean though, that if the vehicle holds its value well, you will have paid more than you needed to. It also means that if it loses value and you choose to sell it after you have paid the GFV, you are likely to lose out.
With the option to return the car, enter a new deal or simply buy the car outright with a final payment, it’s a fairly flexible agreement to be in.
Like leasing, some PCP deals allow you to add maintenance and service costs up into your monthly payments. This means that as long as you don’t go over your annual mileage, or have excess wear and tear, you won’t face any additional costs.
What it comes down to when choosing a pcp or car lease, is what’s best for you. You’ll want to assess a few options, including the car you want to drive, the length of time you want to enter an agreement for, what you can afford to pay, what your circumstances are and whether you want the option to buy the car with a large final payment. Leasing is a great option, whatever your circumstances.
While All Car Leasing doesn’t offer PCP deals, we can lease you a car with a personal contract hire deal that’s tailored to your needs. All you need to do is find the car you want from our car leasing deals, pass a credit check and we’ll be able to deliver a new car to your door. Once you’ve browsed our deals you’ll be well placed to decide between lease hire or PCP for your next car.