Advice and Tips

What is the difference between car finance and leasing?

Advice and Tips // 09 June 2016

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When you’re looking for a new car it can be hard to know what payment option is best for you. If you have the cash, you could simply buy the car upfront and drive away with no monthly payments. If however, you don’t have the cash upfront, you are spoilt with drive now and pay later options.

If you don’t have the budget to buy the car you want outright there are many different options to take. Purchasing a car on finance allows you to get the model you want and then make a series of monthly payments until you’ve paid. Car leasing deals are known to come with cheaper payments plans and at a glance can look very appealing. The decision can be tough but we’re here to help.

Car leasing

Car leasing is a lot like renting a house, you’ll be able to drive it on a long term basis but you’re monthly payments do not work towards you owning the car. You make one up-front payment, followed by smaller monthly payments over a fixed period of time.

Personal contract hire (PCH)

Personal contract hire is the most common form of car leasing; it is a long-term rental plan that gives you the option to drive the model you want without ever owning it. When it comes to contract hire and most types of leasing, you simply need to return the vehicle once the agreed period has ended. Alternatively, you can also arrange a new contract on another car.

Personal contract hire is great if you need lower monthly payments if you don’t want the hassle of selling or dealing with warranties and if you want the flexibility of driving new models. However there are a few negatives, you won’t be able to buy the car when the plan ends, you will need to agree on the amount of miles you’ll be driving each year and if you surpass this you can be charged.

Car finance

Car finance deals are an affordable path to car ownership. As with car leasing, you will make a number of monthly payments over an agreed period of time. The only difference is, at the end of your payment period you will have the chance to buy the car outright.

Hire purchase (HP)

Hire purchase can sometimes involve an initial deposit, followed by monthly repayments which work towards you paying off the total value of the car. After your final repayment, you will officially own the vehicle.

This is a great option as you can drive away without having to buy the car up-front; once you’ve made all of your payments you will own the car. The only down side is as you’re paying off the total value of the car, monthly repayments can be higher than alternative methods.

If you don’t have the upfront cost of the car you’re looking for there are many different options you can take. It is important to look into both the pros and cons of both leasing and finance to see what option suits you best.

If you think that car finance is the best option for you contact the Moneybarn team. Our experts will be able to help you with your car finance application and reach a decision as quickly as possible.