Should I Get PCP or a Car Lease?

If you can’t decide yet whether to get a car finance PCP or lease a car, don’t worry; we’ve prepared this article to help you make a sound decision. Get to know the pros and cons of PCP car finance and car leasing while also learning their similarities and differences. Let’s dive right in!

Car Lease vs Finance in the UK

For both Personal Contract Purchase car finance and car leasing, the monthly payments are more affordable compared to financing a car with a bank loan or with Hire Purchase. Since HP and bank loan repayments cover the full cost of the vehicle, you can expect to pay higher monthly instalments.

For PCP and car leases, however, your payments go toward only a portion of the car’s price. If you’re looking for affordability, PCP car finance or car leasing are better options compared to other types of car financing products. But you have to remember that these two work differently than HP and bank loans. For example, when your contract ends, you won’t be the car's owner. With PCP, you can buy the car by paying the final balloon payment. This option is not available for car leasing though.  

What is car leasing?

A car lease works just like a car rental but for a long-term contract. You first have to choose which car you want to drive and then determine how long you want to have it. Many drivers who lease a car have two to four years contracts. You’d also have to determine your expected annual mileage because it’s among the factors that the car leasing company considers when calculating your monthly payments. 

Before you can drive the car home, you first need to pay a deposit upfront, and then throughout your car lease contract, you have to make payments every month. While you are the one driving the car, remember that the car leasing company retains the ownership of the vehicle. When your contract ends, you have to return the car to them. If you wish to terminate the lease before the end of your contract, you should contact the lease company to know how to go about the process. 

Can you switch from car lease to car finance?

Yes. Switching a car lease to car finance is possible, but it depends on the car leasing company. If you want to buy a car you're leasing, you may ask the car leasing company about it. However, know that they may or may not sell the car to you. It would be a different kind of agreement altogether. But it wouldn’t hurt to ask, so shoot the question if you’re really keen on buying the leased car. 

Remember that when leasing a car, even if you are not the vehicle's owner, you still have to take good care of it. The car leasing company will assess the vehicle to see if there is any damage beyond fair wear and tear. If they find that the car is in bad shape or has exceeded the agreed annual mileage, you can expect to pay penalty charges. 

What is PCP car finance?

With PCP car finance, you will be borrowing the vehicle's full value and paying interest on the remaining balance. In many ways, PCP is similar to a car lease but works very differently. In most cases, you also have to put down a deposit, although some car finance companies offer zero-deposit deals. 

While you’re using the car, you have to make monthly payments that go toward the value the car is expected to lose throughout your PCP agreement plus you also have to pay interest. Since you’re only paying for the expected depreciation of the car, the monthly repayment amount is much more affordable than Hire Purchase car finance, where your payments cover the full value of the vehicle.

What are my options when the PCP contract ends?

At the end of your PCP contract, you have the option to own it, return it, or use its remaining equity for a new car. Bear in mind that the car will not be yours automatically like in a hire purchase agreement. Instead, you must pay the final balloon payment to own the vehicle. But what if you don’t want to pay the balloon payment?

That’s alright because you have two other options to choose from. You may return the car and not pay anything else. However, you have to ensure the car’s in good condition. Otherwise, you might have to pay penalty charges. The other option is to use the remaining equity of the car as a deposit for a new car on another PCP car finance agreement. This is a good way to upgrade your ride without a lot of hassle. 

How to choose between a car lease vs PCP finance?

Before you sign any agreement, it's crucial that you know whether you want to drive a new car, whether you'll be driving a lot, and if you want to have the option to buy the car when the contract has ended. To help you decide between leasing a car or getting PCP car finance, here are some of the most important points to consider.

New or Used Car Options

Car leasing is usually only available for new cars. If you want to save money, choose a second-hand car on PCP finance because this car finance product is available for both brand-new and used vehicles. 

Availability for Bad Credit

Most car leasing companies require good credit scores from drivers who want to lease a car. PCP car finance is typically available for borrowers even if they have bad credit. The interest applied might be higher though, but there are car finance companies that specialise in providing car financing for borrowers with poor credit. 

Annual Mileage Limit

Both PCP and car leasing have annual mileage limits. Be sure to stick to the agreed limit to avoid paying penalty charges. Also, see to it that you keep the car in good working condition throughout the time that you are using it. 

Option to Buy

Leased cars have to be returned to the car leasing company. While you may ask about buying it, there is no guarantee that the company will sell the car to you. With PCP car finance, you have the option to buy the car by paying the final balloon payment. 


Now that you know the difference between PCP car finance and car lease, you’ll be able to choose better which is most suited to your needs and budget. If you will only be using the car for a few years and have no plans of owning it, then a car lease might be for you.

But if you want the flexibility of having a few options when your contract ends, you can consider getting PCP or car finance instead. Either way, you will find both more affordable options in terms of monthly payments. Please note that currently Carmoola doesn't offer PCP deals but if you want to get an estimate of the cost of financing a car by hire purchase, you can use our car finance calculator.