PCP vs Lease: What’s Better for You?

Roman Danaev

Finance17 August 2021

Purchasing a desirable car often leads the buyer to the question – what is the most profitable way to do it? Entrepreneurs do not always have available funds for the purchase of a new vehicle. Applying to financial institutions for a loan can be problematic, as the requirements for bank customers are very strict, and the interest rate is quite high.

A way out of this situation is to purchase a car under the terms of a financial car lease or PCH – in other words, leasing or purchasing a vehicle under the PCP (personal contract purchase) scheme. But which scheme and under what conditions is better to choose? Let’s understand this in this article.

What is leasing?

The leasing company acquires the ownership of a specific property and passes it on to a third party for use for a long period of time. The seller is chosen by the third party – the consumer of this financial service.

During the term of the leasing agreement, the consumer pays the cost of the acquired property plus the leasing. After the specified time and payment of the agreed amount, the property passes into the ownership of the lessee.

Unlike loans, with a leasing deal, collateral is not required, and the long instalment plan noticeably reduces the number of payments and allows the optimal management of company assets. The uniqueness of this financial instrument is that leasing perfectly combines the characteristics of long-term leasing and financial credit.

Please note: only after the leasing agreement expires will the user who bought the vehicle under leasing be the owner upon payment of the residual value of the vehicle. Until then, the lessor will be considered the owner.

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What is PCP?

A Personal Contract Purchase(or PCP) is one of many ways to buy a vehicle without having to pay the full amount at once. PCP financing offers are ideal for those who can’t afford large monthly payments but still want to drive a new car every 2-3 years.

The whole PCP car finance scheme works as follows: you make a deposit, sign a contract for a certain number of months, and make monthly payments. At the end of the contract, you have three options: you can return the car, keep it, or exchange it for another.

To get a PCP deal, you first pay a deposit (usually about 10% of the value of the car). In some cases, it makes sense to pay a larger deposit. After all, the bigger the deposit, the less you have to borrow.

You may be able to find offers without a deposit, but they tend to be less common.

The amount you will have to borrow is based on how much the finance company predicts the car will lose in value over the life of the deal (usually 24 or 36 months), minus the deposit you made. You will pay this amount over the term of the deal plus interest. Thus, you are not covering the full value of the car.

Often, car financing offers list a fixed interest rate – ignore that. You are looking for APR, as it includes all interest. The APR is required by law to be listed, so look it up and ask if you can’t find it.

Difference between pcp and a car lease

So what are the differences between the two car buying schemes? We have prepared a table with a simple and clear explanation of the advantages and disadvantages of both approaches.

Personal contract purchaseLease
Deposit requiredYesYes
Fixed monthly paymentsYesYes
Interest charged on repaymentsYesNo
Mileage allowanceYesYes
Maintenance packageYesYes
Depreciation risksNoNo
Charges for excess wear and tearYesYes
Balloon paymentYesNo
Secured against an assetYesYes
Own the car outright the termNoNo
Early pay off chargesYesYes
Available CarsAnyAny
Secured Against an AssetSecuredSecured

1. Available Cars

As a rule, for both PCP and car leasing, almost any car is available. The only thing you should keep in mind with car finance is that you will not be able to add any additional options or change the colour of the vehicle. Otherwise, auto dealers provide cars to suit all tastes.


You can acquire any car available for purchase in the UK under the PCP. Of course, if you’re new to driving or have a bad credit history, you shouldn’t count on a premium vehicle. But otherwise, there are no obstacles in your way to the car of your dreams!


Some leasing companies limit their range to those cars that dealers offer them. Of course, companies are interested in the best deals. Most likely, you will find the most common and popular brands like Volkswagen or Toyota. But that doesn’t mean that the entire range will be dull – sometimes you can come across a Tesla, too!

2. Monthly payments

In both deals, you will have to make a monthly payment for the car. It can depend on many factors, from the amount of the deposit you make to your credit history and the dealer’s percentage.


At the very beginning of the contract, you make a deposit – usually 10% of the car’s value. Then the monthly payment estimate is based on how much the value of the car depreciates over the life of the deal. In the end, you pay that amount with interest, which can range from 4% to 7%.


Leasing deals are usually described by the scheme “6+35” or “3+23”. Don’t be frightened when you see this; it’s simple math. This is how dealers portray the amount of the down payment and the number of monthly instalments you’ll have to make. For example, let’s say you pay on a “6+35” scheme; this means that the down payment will be equivalent to a six-month amount, and then you’ll need to pay for another 35 months.

3. Do I own the car?

The choice of a scheme to buy a car (or its long-term rental) is also based on whether or not you want to become the car owner later. Different rules apply for PCP and car leasing in this regard.


With a PCP, you can repurchase the car for your own use after the lease ends. To do this, you will need to pay a guaranteed minimum future value (GMFV), aka a balloon payment. In this case, at the end of the lease, the car becomes yours. The final payment is always negotiated with you before the contract is signed.


In the case of a lease, you cannot become the car owner even after the expiration of the contract. Even though your name will appear on the registration document as the primary user, the car remains the supplier’s property for the duration of the lease. At the end of the lease term, the vehicle is returned to the car leasing company.

4. Mileage

Vehicle mileage may also be limited depending on the type of car finance you choose.


Here, your mileage will be limited. But some PCP offers allow you to include maintenance and service costs in your monthly payments, as long as you don’t exceed your annual mileage allowance. That way, as long as your car doesn’t have excessive wear and tear and doesn’t exceed the mileage limit, you won’t incur additional costs.


In the case of leasing, the mileage will be limited. When ordering a car, you will need to specify the annual mileage you will need. This will be factored into your monthly payments. The more mileage you schedule, the higher the will be.

5. Budget

Knowing exactly how much you will pay each month is incredibly important. PCP deals and leases offer the ability to find a car to fit any budget and wallet, so you can effectively plan your monthly payments and other auto expenses.


With PCP, you can keep your monthly car budget under £300. Of course, it won’t be some luxury car – most likely, it will be a Ford or a Renault. But it’s not bad either when you have limited funds and the huge need for a car, don’t you agree?


You can lease a luxury car as well as a mid-range car. The monthly payment will depend on how much of a deposit you make and how long you lease the vehicle. Nevertheless, it’s also easy to find options to suit every budget.

6. Flexibility

Deal flexibility is also an essential prerequisite for any client. Fortunately, both lease options offer flexibility in terms and different alternatives for contract resolution.


The room for manoeuvring is endless here. You can pay back the value of the car before the contract ends. You can choose between three possible options after the contract ends. You can adjust your monthly payment – it is up to you.


You can either enter into a personal car rental agreement or a business car rental agreement. The fact that you are not the owner during the rental period or after its termination gives you more flexibility for further decisions. So, after 2-4 years, you can quickly get a new car, saving yourself from unnecessary paperwork.

7. Early Termination

There are all kinds of unforeseen things that might happen. What to do if you can no longer afford a car – or, conversely, are you ready to close your contract sooner? There are several options for these cases as well.


You can close the deal early – but be prepared for the fact that it may cost you more. Even if you want to complete it early, you will still have to cover the balance of the contract – that is, the full payment of the car at the time of closing.


The car supplier is obliged to help you terminate the contract early – no matter the reason. If you can no longer afford the lease or decide to take another car, it is possible to terminate the contract early. The only nuance is that you will probably have to pay an additional.

8. Deposit

With both leases and PCPs, you will need to pay a deposit for the rental machine. Let’s take a closer look at what each case depends on.


Typically, the dealer will ask you to pay 10% of the value of the car. But if you can afford a higher payment, it will benefit both you and the dealer. The higher your down payment, the lower your monthly payments will be over the life of the contract, and the more confidence the dealer will have in your ability to pay.


In the case of leasing, the size of the deposit may vary. As we wrote above, it all depends on the scheme you choose and the number of months you need the car for. Typically, the deposit for leasing is between 3 and 6 monthly payments.

9. Road Tax & Breakdown Package

Before renting a car. For example, it is definitely worth finding out who the road tax and breakdown will be on.


The PCP financing option includes depreciation, interest, and road tax if you want to buy the car for your own use after the lease ends. This should be spelt out in your contract – be sure to discuss the details with your provider before you sign the papers. What’s more – PCP does not include breakdown payments.


Whether or not the car will be taxed and if you will have a breakdown payment depend on the supplier. You can have both options – expenses taken into account in your payments and costs imposed entirely on you. Be sure to read this part of the contract – it should clearly state how the road tax is handled.

10. Depreciation Risks

Of course, no purchase is insured against depreciation. But, sometimes, all the risks of depreciation can be put directly into the lease transaction.


In the case of PCP, the depreciation of the car is already included in the amount of your transaction. This is what you pay during the term of the contract. But be prepared for the fact that in the event of early termination of the contract, you will have to pay the full amount for the car – including taking into account the depreciation.


In the case of leasing, everything is much simpler and more pleasant. Since you return the car to the dealer at the end of the transaction, depreciation is no longer your headache. In this regard, leasing, of course, is much more convenient than PCP.

11. Secured Against an Asset

Bank loans are provided in one of two forms – secured or unsecured. How will things be with your car deals?


The PCP deal is secured. This means that your car rental is secured by one of your assets. It can be a house, household appliances, or something else. This approach makes you more reliable in the eyes of the lender – but it may end unfavourably for you if you are unable to pay the cost of the transaction.


Leasing is also secured against one of your assets. Discuss in advance with the leasing company which asset will provide your payment and what consequences await you in case of default.

Similarities between leasing and PCP

As you may have already noticed, these two types of transactions are quite similar. Let’s explain once again what the similarities are between PCP and leasing.

  1. Both schemes offer you the ownership of any car for relatively low monthly and with the possibility to return the car at the end of the rental period.
  2. If you rented one car but realised that the monthly for it is too much for you, you can exchange it for a simpler car to reduce the amount of the contract.
  3. In both schemes, you pay for damage to the car or exceeding the mileage. If the car is returned in excess of the BVRLA “Fair Wear” standards, you may face penalties.

Which option is best for me?

Whichever deal you choose, focus on what will be more convenient for you. Think about how often you will need a car, how much you are willing to pay monthly for the vehicle, whether you want to buy it into the property after renting it, and so on.

So, if it is more convenient for you to change cars every few years, leasing is better for you. Although, if you want to take ownership of a car, but you do not have the opportunity to pay the full amount for it immediately, PCP is better for you. All you have to do is find the car you want among the leasing or PCP finance offers, pass a credit check, and you already have a new car.

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Now let us answer some of the most popular questions.

Is it better to finance or lease a car?

It all depends on what you are planning to do with it after the contract has ended. If you no longer need the car, it is probably best to choose a lease. But If you want to keep the vehicle, then choose PCP finance.

Is PCP an operating lease?

Many PCP agreements should be considered as operating leases. Here, from the very beginning, it may be unclear whether the purchase option will be implemented. This is also true in cases where the final payment is a high percentage of the cost of the vehicle.

Is PCH better than PCP?

It may be better for you, depending on your situation. PCPs tend to last 2-4 years, after which you have the options to buy, return, or part-exchange the car. As you can see, this option is more flexible than a PCH contract.

Can you buy a car after PCH?

No, you cannot. After the lease contract has ended, the car returns to the lender without any possibility for you to buy it.

What is the downside to leasing a car?

First of all, as your deal is secured against an asset, you risk losing that asset if you are unable to pay for the car. Second, you cannot buy a vehicle you rented after the contract has ended. But other than these two points, there are not many downsides to leasing a car.