PCP vs leasing: Which financing option is right for you?

Driver Guides 

So, you’ve found your next car - it’s got everything you need and it’s within budget - great! But how do you want to finance it, personal contract purchase (PCP) (PCP) or a lease? Picking the right one could make a big difference to your monthly bills and even the trim level you can afford, so it’s an important choice.

Luckily for you, the expert team at Gateway2Lease is here to help. We have almost 20 years of experience helping people like you make this choice. We’ll help you weigh up PCP vs. leasing, including the main differences and how to pick the right option for you.

If you’ve already made up your mind, and you’d like to discuss a tailored lease deal on your dream car, just give us a call now on 01299 407 360.

At Gateway2Lease, we specialise in car leasing and do not offer PCP agreements — but we’ll help you understand the differences so you can make an informed choice.

What is PCP?

PCP is a form of car financing that involves an initial deposit followed by monthly payments. These payments count towards the value of the car. At the end of your PCP contract, you will be given the choice to make a ‘balloon payment’ to cover the remaining value or hand the car back to the lessor and use the accumulated equity as a deposit on a new vehicle.

What is leasing?

Car leasing is an alternative form of car financing. It involves an upfront initial rental payment and subsequent monthly payments, but in this case, they don’t count towards the car's value. However, leasing payments tend to be smaller than PCP payments.

Leasing is essentially a form of long-term rental, where you don’t own the car at any point; instead, you borrow it from the provider for an agreed period of years. When your contract ends, you return the car and decide which you would like next. Leasing usually gives you access to a newer range of cars than PCP, because the payments are more affordable.

5 key differences between PCP and leasing

1. Ownership and end-of-term options

One of the most significant differences between PCP and lease finance options is what happens at the end of your term. With PCP, you’ll be given the choice of making a final ‘balloon payment’ to cover the car's remaining value, at which point you’ll be the legal owner. Or you can hand the car back to the lender and use the equity you’ve built up so far as a deposit on your next vehicle.

With leasing, you won’t be given the choice to own the car. When your contract ends, you’ll give the car back to the provider, at which point you can choose to sign a fresh lease deal on a brand-new car or simply walk away.

2. Monthly payments

Both PCP and leasing involve making monthly payments, but there are variations. Because PCP involves paying towards the value of the car, the monthly payments are usually higher and involve an interest rate which can change based on economic conditions. Whereas leasing typically means lower monthly sums and fixed rates for the length of your contract.

This difference in price can either allow you to get the same model for less or afford a higher trim level or newer model than you could otherwise.

3. Mileage limits and charges

This is where PCP and leasing are very similar. When you sign a PCP or lease deal, you agree to annual mileage limits of your choice and confirm that you will keep the car in good condition. If you exceed the mileage allowance or the car sustains any damage beyond what could be considered ‘normal wear and tear’, you will be charged a fee. However, the difference is that with PCP, if you choose to buy the car at the end of your contract, the mileage becomes irrelevant.

4. Flexibility and contract terms

Another area of difference when it comes to PCP vs leasing is flexibility. PCP deals are relatively flexible, giving you more choice in terms of deposit amount and early termination. By contrast, leasing terms are more rigid.

However, that rigidity swings both ways and means that your monthly costs won’t change during the length of your term with leasing. In contrast, PCP deals involve interest rates, which can fluctuate, meaning your monthly payments could increase over the years.

5. Credit and eligibility requirements

Because both PCP and leasing are finance agreements, you will have to pass a credit check to obtain either. However, the difference between PCP and leasing is that credit checks for leasing are usually less stringent than for PCP, which could make it a better option if you’re concerned about your credit score.

A lower credit score may make it more difficult to be approved for financing, so bear this in mind.

PCP vs leasing: which is right for you?

Budget and financial goals

Consider your budget and your financial goals. How much can you afford to put down as a deposit, what kind of monthly payments can you make, and do you want to own the vehicle?

If you can afford higher payments and your goal is ownership, PCP might be the right choice for you. But if you want fixed payments, lower monthly costs and a newer, higher spec model without the hassle of ownership, then leasing should be considered.

Driving habits

If you do a lot of miles each year, the lower monthly costs of leasing might suit you better, allowing you to select a higher mileage allowance without breaking the bank. In any case, leasing is likely to be more cost-effective, even if your mileage isn’t particularly high.

You should also weigh up how you’re likely to use the car. If it’s destined for a hard life as a work vehicle or off-roading leisure item, both PCP and leasing might be unsuitable, as you’ll have to pay fees for any undue damages.

Long-term vs short-term needs

With leasing, you trade lower, fixed monthly costs for a lack of flexibility. But this means that cancelling early is difficult, so you need to be sure that you can afford to make your payments for the duration of your contract and that you’re happy to do so.

If your needs are a little more changeable or your financial situation is likely to evolve, PCP might be more suitable. It’ll give you extra wiggle room if you need to make adjustments or cancel early.

Explore car leasing at Gateway2Lease

So, now you know the difference between PCP and a car lease, but which one will you choose? Only you can make that decision, but make sure to carefully consider the pros and cons of each. In our experience, leasing provides the most cost-effective, financially predictable and hassle-free way to get behind the wheel of a new car.

At Gateway2Lease, we have almost two decades of experience helping customers find the perfect car lease. We offer outstanding service and access to a range of the latest models from leading manufacturers.

If you’d like to explore a customised lease deal based on your needs, all you need to do is talk to our friendly team. You can reach us now by calling 01299 407 360, emailing enquiries@gateway2lease.com or filling out our contact form.

PCP vs leasing FAQs

Can I buy the car at the end of a lease or PCP?

You can buy the car at the end of a PCP deal, but not a lease. PCP payments count towards the car's value, whereas lease payments do not. However, leasing leaves you free of the legal and financial hassle of ownership, meaning no troublesome resales or documentation.

Is PCP or leasing better for business use?

Leasing tends to be better for business use. One significant difference between PCP and leasing for businesses is that you can write off the VAT on lease payments, saving you a further 20%.

What happens if I exceed the mileage limit?

If you exceed the mileage limit on either a PCP or lease deal, you’ll have to pay a fee. Before signing your contract, you should ensure that the mileage allowance matches your realistic usage, including any commuting and personal use. It’s usually more cost-effective to overestimate your mileage than exceed it and pay fees.

Are maintenance and insurance included?

It’s not common to find PCP deals which include maintenance and insurance. However, with a lease, you’ll often be given the option to bundle your maintenance and insurance costs with your lease payments.

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