Car Finance vs Leasing: What’s the Difference and Which Is Right for You?

If you’re looking to get behind the wheel of a new or used car, you’ll likely come across two popular ways to fund it: car finance and leasing. While both let you drive away without paying the full price upfront, they work differently—and choosing the right option can save you money and hassle.

In this guide, we’ll explain the differences between car finance and leasing, their pros and cons, and help you decide which suits you best.

What Is Car Finance?

Car finance is a way to buy a car in affordable monthly instalments instead of paying all at once. Common types of car finance in the UK include:

Hire Purchase (HP) – Spread the cost over fixed monthly payments. At the end, you own the car outright.
Personal Contract Purchase (PCP) – Lower monthly payments with an optional final “balloon” payment to keep the car, or return it at the end.

Key features:

• You can own the car at the end (HP) or have flexibility (PCP).
• Usually requires a deposit.
• Interest is charged on the amount borrowed.

What Is Car Leasing?

Leasing (also called Contract Hire or Personal Contract Hire/PCH) is more like renting a car long-term. You pay a fixed monthly fee for a set period (typically 2–4 years) and then hand the car back at the end of the lease.

Key features:

• No option to buy the car.
• Often includes road tax, with optional maintenance packages.
• Mileage limits apply (excess mileage charges if you go over).
• Suitable for new cars only.

Pros and Cons of Car Finance

Pros:

• You can own the car (especially with HP).
• Flexibility with PCP: keep, return, or part-exchange.
• Available for new and used cars.
• No mileage limits if you choose HP.

Cons:

• Monthly payments may be higher than leasing.
• Interest costs increase with longer terms.
• You’re responsible for maintenance and resale value (unless you return with PCP).

Pros and Cons of Leasing

Pros:

• Lower monthly payments than buying.
• Drive a new car every few years.
• Road tax usually included; optional maintenance plans.
• No worries about resale value.

Cons:

• You never own the car.
• Strict mileage limits.
• Early termination fees can be high.
• Usually for new cars only—not an option for used vehicles.

Which Is Right for You?

Choose Car Finance if:

• You want to own your car eventually.
• You’re buying used or new.
• You prefer flexibility (especially with PCP).
• You want no mileage limits (with HP).

Choose Leasing if:

• You always want a new car.
• You don’t mind never owning it.
• You’re happy with mileage limits.
• You want hassle-free budgeting with predictable monthly costs.

Need Advice? Talk to Us

Deciding between car finance and leasing depends on your needs, budget, and plans for the future. At carloans 365, we specialise in making car finance simple—even if you’ve had credit challenges in the past.

Ready to get started? Contact us for friendly, expert advice, or try our free online finance calculator to see what you can afford.