Hire Purchase vs Leasing: Which is Better?

If you’re in the market for car finance, you’ll probably have heard about Hire Purchase – or HP for short – and leasing.
They’re two of the most popular types of finance and have more in common than you might think. Most importantly, they both let you spread the cost of a new or used car over several months or years and, in return, you’ll pay fixed monthly repayments plus interest.
But there are some key differences too.
So, which is better?
There’s no one-size-fits-all. When deciding whether HP or leasing is the right choice for you, it all depends on your individual circumstances, financial situation, and personal priorities.

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In a nutshell, what’s the difference between hire purchase and leasing?

The big difference between HP finance and leasing is car ownership.
With HP, you’ll be working towards becoming your car’s legal owner. When you reach the end of your agreement, all your repayments are made, and you’ve paid the small Option to Purchase fee, it’ll be all yours!
Leasing rarely ends with you becoming the proud legal owner of a new set of wheels. While it can sometimes be an option if you’ve really fallen in love with the car during your lease, in most cases, you’ll simply hand the car back to the lender and walk away when the lease is up.

How does hire purchase work?

HP finance lets you spread the cost of a new or used car over a period of between one and six years (depending on the agreement length allowed by the lender).

You’ll usually need to put a deposit down upfront (although no deposit options are available) and then make fixed monthly repayments – plus interest – throughout the loan term.

Diagram showing how hire purchase finance works

The finance is secured against your vehicle, meaning you’ll be its registered keeper, but the lender will be its legal owner until your loan ends. Once you’ve made all your repayments and covered the transfer paperwork costs with the Option to Purchase fee, congratulations: you’re officially a car owner!

As its registered keeper, you’ll be responsible for the car’s upkeep, fuel, and insurance as soon as you sign your agreement, but you won’t be able to modify or sell it. Mileage restrictions also don’t usually apply with HP loans.

How does car leasing work?

Leasing – also known as Personal Contract Hire or PCH – is a lot like a long-term car rental.
Your lease will usually last between one and four years and you’ll pay a fixed monthly payment throughout. However, unlike HP, you won’t automatically become the car’s owner when your lease comes to an end.

Diagram showing how car leasing works
If you’ve fallen hard for your leased vehicle and can’t bear the thought of letting it go, some lease companies will let you buy it at the end of your agreement. But there are no guarantees and most leases end with you handing the car back and walking away.  
Like HP, you’ll probably have to put down a deposit upfront. The exact amount will depend on your agreement, but you might be asked to pay three, six, or even nine months’ worth of lease payments in advance.
Terms and conditions will apply. Most leases come with an annual mileage limit (and penalty charges if you go over it) and you’ll need to keep the car in good condition to avoid paying extra to cover the damage.

What are the differences between both options?

The big difference between HP and leasing is that one leads to car ownership and the other doesn’t, but that’s not the only thing that sets these types of finance apart:

Mileage restrictions

Leases usually come with an annual mileage limit, but with HP loans, you can drive as far as you like.

Fair wear and tear

As you’ll be handing the car back at the end of your lease, you’ll need to keep it in good condition. With HP, this only becomes an issue if you need to end your agreement early and give your car back to the lender.


HP finance normally leads to car ownership, which means any loss of value (depreciation) could affect the price you can sell it for in the future. With a lease, you don’t have to worry about this as you’re not the car owner. 

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What are the pros and cons of hire purchase?

There are a range of advantages and disadvantages of HP finance that you should think about before signing on the dotted line:



  • You’ll become the car’s legal owner at the end of your agreement
  • You won’t have to worry about annual mileage restrictions
  • HP can be more accessible to people with poor credit scores
  • You can hand the car back early with Voluntary Termination 



  • Monthly payments can be higher than other types of car finance
  • You won’t be the car’s legal owner until all your payments have been made
  • You may be affected by depreciation over time 
  • You’ll be responsible for selling the car if you no longer want it

What are the pros and cons of leasing?

If you’re tempted by the thought of leasing a car instead of buying one with HP, here are a few advantages and disadvantages to help you make up your mind:



  • Monthly payments can be lower than other types of finance
  • You could get behind the wheel of a newer car and can change cars more often
  • You don’t have to worry about depreciation


  • You don’t own the car and will need to return it at the end of the lease
  • You’ll likely have to agree an annual mileage restriction
  • You’ll be tied into a contract and may be charged a penalty fee to end the lease early
  • You might face extra charges if the car is damaged beyond fair wear and tear

What other alternatives are available?

HP and leasing aren’t the only car finance options available. If these aren’t ticking the boxes for you because you’re looking for more flexibility, lower monthly repayments, or to be the car’s legal owner straightaway, you might want to consider these alternative types of car finance:

Personal Contract Purchase (PCP)

Personal Contract Purchase – or PCP – gives you options. Like HP, you’ll pay a deposit upfront and then make fixed monthly repayments for between one and five years. But PCP doesn’t have to lead to car ownership:

    • When your PCP loan ends, you can make a large one-off payment to buy the car (known as the balloon payment), hand it back to the lender, or use any positive equity available as a deposit in a new deal.
    • Instead of borrowing the car’s full purchase price, your loan payments will cover the difference between its current price and how much it’s estimated it’ll be worth at the end of your agreement (Guaranteed Minimum Future Value or GMFV).
    • PCP can have lower monthly repayments than HP, but you’ll have to pay a large one-off balloon payment, usually equivalent to the GMFV, to become the car’s legal owner.
    • An annual mileage limit will usually apply, and you’ll face an extra charge for every mile you go over it.  

Diagram showing how PCP finance works

Personal Loan

Personal loans are a different beast in the world of car finance as they (usually) aren’t secured against the vehicle. Instead, you’ll become the car’s legal owner as soon as you’ve used the loan to pay the dealer or private seller: 

    • As its legal owner, you’re free to sell the car, go on an epic road trip, add a giant spoiler, or install an ear-splitting sound system if you like. You just need to make sure you keep making loan repayments until the agreement ends.
    • Unsecured loans present more of a risk to lenders, so they’re usually restricted to people with a solid payment history and good credit score.
    • Monthly payments can be higher than other finance options.

Diagram showing how personal loans work

HP vs leasing: how do I decide which is right for me?

There’s no right or wrong answer when choosing between HP and leasing. The best option for you will depend on your personal preferences, needs, and circumstances.

Hire Purchase

HP could be the right option for you if:

  • You want to own your car in the future
  • You don’t plan to change car for several years
  • You travel a lot of long distances and don’t want to worry about mileage restrictions
  • Your financial situation might change in the future
  • Your credit score could do with some work

Leasing could be the right choice if:

  • You want to have low monthly payments
  • You like changing car every few years
  • You like the flexibility of having a shorter term and no car ownership responsibilities
  • You drive a similar number of miles each month
  • You use your car for business and could benefit from favourable business lease rates 

FAQs about Hire Purchase and Leasing

Which is cheaper, leasing or hire purchase?

There are a whole host of factors that can affect the cost of leasing and HP. Your monthly payments and total amount payable will depend on the type of car you choose, your credit score, the length of your agreement, your annual mileage, and more.
Leasing often offers lower monthly repayments than HP as it doesn’t lead to car ownership. This can be especially true if you’ve chosen to lease a car that’s likely to hold its value over time.
On the other hand, if you spend hours on the road and love a cross-country road trip or two, a lease with a strict mileage restriction might end up more costly than a low interest HP loan with no limits on distance.
Make sure you think about both your monthly payment amount and the overall cost of the loan when looking at your budget. The cheapest monthly payment doesn’t always mean it’s the cheapest finance option.

Do you own the car on hire purchase finance?

With HP finance, you won’t be the car’s legal owner until you’ve finished making all the repayments and paid the Option to Purchase admin fee.
During the finance agreement, the lender will own the car and you’ll be its registered keeper. This means you can’t sell or modify it without permission, and you’ll be responsible for its maintenance, MOT and service, insurance, and fuel costs.

Is hire purchase finance hard to get?

Every lender has different eligibility criteria when it comes to HP finance. They take a wide range of factors into account – and it’s not all about your credit score.
As HP loans are secured against the car, they can be easier to get for people with mixed credit histories. In fact, there are lenders who specialise in offering bad credit car finance loans.
If you’re worried about being rejected for HP finance, you could improve your chances by choosing a cheaper car, taking steps to improve your credit score, and putting down a large deposit upfront.

Are there similarities between hire purchase and leasing?

In their simplest terms, both HP finance and leasing give you access to a car in return for fixed monthly payments, plus interest. They both can last for several years and are secured against the vehicle, so you won’t be its legal owner during the agreement.

What’s a balloon payment?

Balloon payment is the term used to describe the one-off payment due at the end of some car finance loans. It’s a common feature of PCP finance and lease purchase and is usually equivalent to the GMFV – the amount the lender thinks your car will be worth at the end of your agreement. This could be several thousands of pounds, but refinancing loans are available.