Is It Better To Finance Or Lease A Car?

For most people, owning a car is a dream come true, yet it’s one of the biggest expenses you will incur. There are several options to consider if you are looking to borrow to get your next car. You can either use car finance or lease. Factors such as your budget, taste and lifestyle, financial obligations, and responsibilities should all be considered before you settle on a car deal.

Financing a car lets you take out a loan to buy the vehicle. When leasing, on the other hand, you make payments to use the vehicle for a specific period. Whether you choose to lease or finance the car, there will be financial implications. Leasing may be less expensive in the short-term, whilst buying is much cheaper in the long run.

To help you make the right choice, here’s everything you need to know about financing vs leasing a car in the UK.

Financing A Car

Saving up the total amount to buy a car can be a daunting experience. If you are finding it difficult to save the whole amount for the car you want, and you need to borrow the bulk of the cost, you have two financing options; dealership financing and direct lending.

Direct Lending

This option is one of the most common methods used for financing a car. You can borrow from your bank, or any other financial institution. Before committing to this, you should understand the credit terms, i.e., annual interest, term length, and the total amount to be paid back. It’s best to shop around and compare the credit terms offered by different lenders before choosing one.

Dealership Financing

In case you can’t get or don’t want a drect loan, you can look at getting a financing agreement with your dealer. Under this contract, you agree on the terms of payment, the period, and the finance charge. This type of financing can be beneficial as it provides incentives for the buyer. Your dealer can offer special programs that are limited to certain cars, or have shorter contract periods.

Pros of Financing a Car

There are plenty of advantages to financing a car. Here’s a rundown of the main benefits you’ll experience:

Car Ownership

Despite making monthly payments on the car loan, financing a car is better because you own the vehicle in the long run. After fully paying off your loan, you'll have the option to keep it, trade it in or even sell the car. Compared to a car lease, you will have full ownership.


Because you own the car, once you have completed all the repayments,, you can alter and customise it to your liking. There are no limits or extra charges if you decide to add any additional features and accessories to the car. However, keep in mind that customising the vehicle may lead to an increase in insurance costs. Sometimes it’s possible to make some changes before completing the term of the loan, but please check with your lender first. 

No Mileage Limit

When you go for a leased car, there is a cap to the number of miles you can drive. However, with your own vehicle, you have the flexibility to go as far as you want without extra charges. You don't incur any wear and tear charges either if you take a loan.

Cons of Financing a Car

While there are big benefits to financing a car, there are some potential drawbacks too. Consider the following cons of financing a car before deciding if it’s the right option for you:

Higher Payments

When deciding between a leased or financed car, you need to keep in mind that the monthly payments might be higher with a loan. This drawback is because you are paying for the total value of the vehicle.

Extra Costs

With both car finance and lease, the car will encounter mechanical issues and wear and tear. However, if you own the vehicle via financing, all the extra costs and expenses are on you once the warranty expires. If you have excess wear and tear, this might significantly affect your resale value.

Leasing a Car

Leasing a car lets you essentially rent it from a dealer for a certain period. Once the leasing period ends, you can either return the vehicle or purchase it. Your dealer should include these details in the lease contract before you get the car. Like financing, there are advantages to this type of arrangement. Let’s take a look at the pros and cons of leasing:

Pros of Leasing a Car

When you choose to lease a car, you’ll get to experience various benefits. These include, but aren’t limited to:

Lower Monthly Payments

If you opt for a leased car, your monthly payments may be lower than a loan. This coule mean you might even choose to go for a more high-end vehicle than you could perhaps afford to buy. There is also little or no down payment required for the car, usually it’s just a month’s lease payment equivalent.

Fewer Repair Expenses

If you are within the warranty period, you don't have to worry about the repair bill. Warranties can cover up to three years and they include repairs. This clause protects you from unnecessary expenses.

Car Options

If you like driving the latest car model each year, car leasing vs. financing shouldn’t be a difficult choice for you. You can lease a new car every few years, and enjoy the latest technology, safety, and comfort features. Once your lease period ends, you simply return the vehicle and get a new one.

No Resale Issues

Since you don't own the car, you don't have to worry about the hassle of resale. With a lease, you only need to return the vehicle to the dealership and get a new model.

Better Financing Terms

With leasing, there are fewer regulations, especially with regards to your credit score. Once you default your payments, they repossess the car.

Cons of Leasing a Car

There are less cons to leasing a car than there are advantages. However, it’s still worth considering the following:

Mileage Limit

Compared to financing a car that you fully own, there is a mileage limit on leased vehicles. If you exceed the limits on the contract, you incur more costs.

Car Return

Leasing a car is just like renting an apartment. After the set period, you need to return the vehicle to the dealership. You may incur extra costs for extra mileage or unacceptable wear and tear. You only make monthly “rental” payments, which of course doesn't give you any ownership once the lease expires.

Car Finance or Leasing – Which One to Choose?

Deciding on car finance or lease has a significant financial implication. Which one is right for you depends on various factors. If you are more into driving new cars every few years, the short-term plan to lease is the best option for you. However, if you intend to purchase a vehicle that you can use in the long term until a resale or upgrade, it's best to look at financing options such as loans.

If you do decide to go down the finance route, Carmoola has various options to choose from. We are revolutionising the car finance market, making it fast, simple, and convenient to apply for the finance you need.

Learn everything you need to know about how Carmoola works, and see just how easy it is to get the car finance you need.