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Which is Better: Hire Purchase or Lease?

Between hire purchase and car lease, which one is the better choice for you? Hire purchase car finance sounds complicated, doesn’t it? But when we hear car leasing, it’s much easier to grasp because we know it’s much like renting a car but for a longer term. Some drivers lease cars without really exploring if a hire purchase deal is the better way for them to finance a car. Are you in this situation? Let’s compare hire purchase car finance vs car leasing. 

What is Hire Purchase?

So what is Hire Purchase and is HP better than getting a lease? Hire purchase is a type of car finance product where you can actually buy a car without paying the full price in cash up front. How does this work exactly then? The first step is to apply for financing from a lender. Once you’ve been approved and given credit, you can buy the car you want. Typically, though, you have to put down a deposit, which is at least 10% of the car’s price. But you can also get zero deposit HP too, although this would mean higher repayments and interest rates too. After that, you will pay a monthly instalment throughout your car finance agreement, which typically can be one to five years. 

When you’ve reached the end of your contract and you’ve made all the payments, the lender will transfer the ownership of the car to you. There might be a small fee for processing the paperwork, but it’s very minimal. Here at Carmoola we charge just a nominal £1. You can check your contract for the details because this fee might differ from one car finance company to the next. 

What is Car Leasing?

Car leasing is sometimes also called Personal Contract Hire. With this type of arrangement, you’ll also pay a deposit followed by monthly payments for the duration of your contract. The usual contract term for car leasing is two to four years. The payments you make do not go toward the full price of the car. Instead, you’re paying for the value that the car will lose while you’re using it. 

Since leasing a car means you’re only renting it for a long period, you will never own it. After your contract, you must usually return the car to the car finance company. It’s important to note that the car should still be in good condition. Fair wear and tear are expected but if there is any damage beyond that, then expect additional charges for the repairs. Also, remember that there’s an annual mileage limit that you need to abide by. If you go beyond the agreed limit, the car finance company will also charge extra. 

While you may not have the option to buy the car with a car lease contract, you may sign a new agreement after you’re done with the previous one. You can have a brand new car to drive every couple of years without worrying about the car’s depreciation. 

Which is Better for Me - Hire Purchase or Lease?

As you can see from the definitions above, hire purchase car finance and car leasing are starkly different. They do have some similarities, like paying a deposit followed by monthly payments but altogether, they are not the same. Hire purchase is a great choice if you want to own the car without spending a big chunk of your savings to buy it outright. Car lease agreements do not usually give you the option to buy the car. You have to return it to the car finance company. 

Owning the Car

The first question you’d want to ask yourself is if you want to own the car at the end of the contract. If you’re sure about this, then a hire purchase car finance deal is the best way to go. What if you only need to have your own car to drive for a couple of years? In this case, then car leasing makes more sense. Also, leasing a car is more affordable than financing a car with hire purchase. 


Another question to ponder is, “How much can I afford to pay for a car every month?” Hire purchase monthly payments are typically higher than other types of car finance agreements. It’s because your payments go to pay for the total price of the car. Car lease payments are more affordable because you’re only paying for the depreciation of the vehicle

If you want to get a hire purchase deal but you also want a lower monthly payment amount, you may choose a longer repayment term. While this decreases the amount you have to pay every month, remember that you’ll be paying for the loan for a longer time. Overall, you’ll pay more interest than if you choose a shorter term. 

Your Needs and Preferences

How will you be using the car? If you need to make modifications to the car, you may do so with hire purchase, but only once the ownership has been transferred to you. While you’re still paying for the vehicle, you cannot modify the car. Be sure to check your contract and the specific details on what you can and cannot do with the vehicle. With car leasing, you’re not allowed to make changes to the car because it is not yours. The car finance company expects the car to be returned in much the same condition. 

Another thing to consider is the mileage. Will you be using the car for frequent long drives? Hire purchase might be a more practical choice because you won’t be restricted by a mileage limit. When you lease a car, you have to be mindful of your mileage because you’ll be charged extra for every mile exceeded. 


So, which is better, hire purchase or car lease? The answer to this question depends on your budget, needs, preferences, and whether you want to own the car or not. Take time to assess these factors so you’ll be able to arrive at a sound decision. Hire purchase and car lease are good options when it comes to getting your own car to drive. You only have to choose the best one that can address your own personal needs and situation👍. 

We’d love to hear your thoughts on this article!