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Leasing Vs PCP – Which Is Better?

What is leasing?


Buying a motor comes with the burden of depreciation, meaning you’re going to get much less for your old car when it comes to selling up than you first got it for.

Current rates suggest that the value of a new car can drop by 30% after the first 12 months. Things don’t look much better for the next four years you have with the vehicle, either, with an average dip of 10% per year expected.

Should you wish to lease a car, depreciation won’t be your concern. At the end of your agreement the keys go back to the provider and it’s then up to you to decide if you want a new model or if you want to walk away.

Another thing to consider is the cost of your insurance quote price. With many new vehicles getting smaller, fuel-efficient engines in a bid to meet EU emission standards, you’re likely to get a cheaper premium for each new motor you lease. Some insurers even go as far as offering new car discounts.

Leasing requires you to pay a set monthly fee for use of a brand-new car every 2-5 years.

Most major manufacturer and model of car is available when it comes to a lease deal. Once you’ve searched for your ideal car, or found it using your monthly budget, the process can be broken down into the following steps:

  1. Choose how many months deposit upfront you want to pay (one, three, six or nine months’ worth), how many miles you intend to drive each year and how long you want it for (anywhere between 8,000-30,000 miles per year).
  2. Compare deals from multiple providers for your chosen car if you’re using an aggregator or use lists from one provider to find the best offer.
  3. Enquire about leasing the vehicle – you can specify a time which is best to contact you and arrange final details, along with a mandatory credit check.

At the end of your contract, you simply hand the lease car back to the leasing company and either take out another deal on a new model, or you can walk away.



What is PCP?

PCP finance deals are another option to consider when looking for a new car. Unlike PCH, it’s is slightly more technical and take some understanding, but we’ve got you covered.

On the face of things, both deals are fundamentally the same. You go to the provider or online retailer and select the car you want. You then pay a deposit, agree on set monthly payments and interest rate, sign the contract and away you go.

Where the two differ is with regards to the final payment.

‘Balloon payment’

With PCP, not only is there a deposit at the start of the agreement, but also a ‘balloon’ payment at the end. This only applies if you choose to purchase the car at the end of the contract.

Even if you don’t have any interest in owning the car at the end, you’ll still agree this final settlement fee at the start.

The lump sum is determined by the finance house at the start of a deal, who will calculate the GMFV (Guaranteed Minimum Future Value) of your car at the end of the deal. The monthly payments for your deal is the difference between the car’s retail price from when you first receive it and its end-of-contract value.

Is leasing or PCP for me?


There are several factors you should consider which will help you decide which option is right for you.

Many people realise that modern vehicles aren’t like their predecessors. Repairs and maintenance are much more expensive than they used to be because of the higher cost of acquiring car parts and the overriding complexity around building each individual model.

As such, leasing offers you the opportunity to use a new vehicle which is covered by the manufacturer’s warranty for mechanical and electrical issues, provided they didn’t occur as a result of driver error.

Generally speaking, PCP costs more over the course of a contract when compared with leasing. This is because there’s extra flexibility involved with the former, such as no-deposit deals, new and used cars available and, of course, the ability to own the vehicle for a one-off balloon payment.

Many people take out PCP deals and treat them like a PCH, opting not to exercise the final payment to own the car. While having an additional option there can be an attractive offer, it’s worth thinking about whether you want to own the car before signing any contract – this way you can avoid overspending.

Depreciation is factored into the cost of your lease deal. So, if you drive fewer miles and specify this in your agreement, it’ll wind up being cheaper.

PCP involves borrowing a car’s total amount, with interest being paid throughout for people who intend to own the car at the end.

Leasing a car gives you the flexibility and peace of mind .