What Is The Difference Between Financing And Leasing A Car?

In the most simple terms, car leasing is where you rent it for a set period of time, whereas financing a car is where you pay monthly towards a car with the view of owning it after a set time. Leasing is often cheaper but you won’t ever own the vehicle, so each has its benefits.

In this guide, we’ll walk you through leasing and financing a vehicle and the key differences between them.

What Is Car Leasing?

Leasing gives you access to the latest makes and models for a set period of time, often two to five years. Unlike buying a car on finance, however, there’s no depreciation or final balloon payment to worry about. At the end of an agreement, you simply hand the keys back and you’re free to upgrade to another brand-new car. 

A car lease has an agreed annual mileage limit, a choice of vehicle specifications and colours, as well as flexible payment options tailored to the person leasing the vehicle. You pay an upfront flexible initial payment and then a set monthly fee, which includes your annual road tax. These fees are set for the duration of your contract.

A lease vehicle also comes with a manufacturer’s warranty, and there’s the option of a maintenance package, which will cover general maintenance and servicing, tyre replacements and other factors for added peace of mind. 

Find out more about how car leasing works in our easy-to-understand guide.

What Is Car Financing?

Financing a car is a way of buying a car that involves paying for it on a monthly basis rather than upfront. You pay a deposit and monthly payments and often a fee at the end of the contract if you want to keep the vehicle, known as a balloon payment. You can sometimes hand it back, depending on your agreement.

The two most common types of financing are hire purchase and personal contract purchase known as PCP. You’ll likely have to pay interest on a financed car unless you’re on a 0% APR deal.

A financed vehicle will typically come with a manufacturer’s warranty but you’ll be responsible for maintenance, tax, etc. They most often come with an agreed mileage until the full value of the vehicle is paid off.

What’s The Difference Between Car Leasing Vs. Financing?

Below you’ll find the key differences between leasing and financing a car.

1. Leasing is often cheaper - your upfront cost and monthly fees are typically cheaper with leasing so you get more for your money.

2. You own a finance car - if you are to take out a finance agreement, you’re the owner of the vehicle outright whereas you ‘rent’ the vehicle with leasing.

3. You don’t pay interest with car leasing - there are no interest payments when leasing, again saving you money. Finance cars usually come with interest payments unless you’re able to agree 0% APR.

4. Leasing lets you access a premium car for less - as you pay less, you’re potentially able to lease a vehicle that would have been otherwise out of your price range when buying.

5. Road tax is covered with leasing - you don’t have to pay road tax as it’s included in your monthly fee.

6. You can easily get a new car every few years with leasing - as you hand back the vehicle at the end of your agreement, you can simply choose your next brand new lease car every few years without selling worries or losing money through depreciation.

7. You can get your deposit back with financing - you usually have the option to get your deposit back when financing, however, with leasing, your initial payment goes towards the cost of your monthly payments, lowering the cost of your lease.

8. Leasing doesn’t have balloon payments - unlike PCP, you’re not stuck with a balloon payment at the end of your contract. You just hand back your vehicle.

9. Some finance agreements don’t have mileage - not all car finance agreements have a mileage limit meaning you can use your car as much as you like.

Should I Lease Or Buy A Car?

It really comes down to you and your budget as to whether car leasing or car finance is better. Consider the positives and negatives of both as well as buying a car outright if you can afford it.

Car leasing can be a cheaper way of getting a brand new car with all fees set and in one place, however, if owning a car is important to you, financing may be a better option. Find out more about leasing vs buying a car.

Think Car Leasing Is Right For You?

If you think car leasing is the right option for you, browse our incredible selection of cheap car leasing deals to find the perfect lease car for you at a great price.