June 23, 2024

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Leasing a Car Versus a PCP – The Key Differences

So, you need a car. Perhaps it’s to get to work, maybe it’s to do your work or simply get the kids to school on time in the morning. Whatever the reason, you just know that a car is what you need. Perfect, just head to a garage and… Wait. PCP or leasing? What’s the difference?

The answer, sadly, is quite a bit. Everything from the way your payments are structured to what happens to your car at the end of your agreement are different under a PCP than a leasing agreement.

What happens at the end of the agreement?

On a PCP

A PCP (Personal Contract Purchase) is, effectively, a form of hire purchase. What do we mean by that? Well, the ownership of the vehicle is with the finance company until all payments have been made. You’re still the registered keeper, but the vehicle is owned by the finance company.

With all your payments made, you’ve got a few options:

  • Want another car? Simply hand it back to the finance company, with no extra fees.

  • Want to keep the car? You can settle your agreement by paying the remaining value on the car, as laid out in your agreement.

  • Want a different car? Part exchange it. Depending on the value of the car, you could be able to cover the deposit on another car.

In a Lease

Leasing is simply hiring a car for a set period of time. So, at the end, your only option is to give the car back. Thankfully, leasing companies will often come and pick up your car on a pre-arranged date, and even drop a new one off for you, if you choose.

Do you pay a deposit?

On a PCP

Yes. Often you can pay as much or as little as you’d like, which affects how much you’ll pay on a month-to-month basis.

In a Lease

No. You will need to front up an ‘initial payment’ however. This is usually a 1,3, 6, or 9-month up-front payment. Following that, you’ll pay a monthly sum and, just like a PCP, the higher the initial payment you choose, the lower the monthly payments will be.

Can you change your mind?

On a PCP

PCP agreements are more flexible than their lease counterparts and often allow you to:

  • Change your car if, say, you need more seats for an upcoming addition to the family.

  • Need to increase the number of miles per year

Depending on your contract and situation these changes might incur a fee, or they could be free. When investigating a PCP always ensure that you read the terms of your contract closely. Do note however that if you wish to cancel your PCP you will typically have to pay up the entirety of your contract.

In a Lease

Leases offer far less flexibility if you want to make a change like swapping vehicles. Typically, your only option is to cancel your agreement and pay any remaining payments. However, some leasing companies just charge a fee for cancelling.

Are there any additional costs?

On a PCP

Insurance is still required on a PCP, so factor that in. You’ll also need to consider the fact that VAT is on top of your quoted PCP prices. Additionally, most PCP providers will offer maintenance packages, an additional monthly fee which will take care of any mechanical issues you might come up against.

In a Lease

Leases tend to be cheaper than PCP deals, largely because the finance company can claim VAT back on their vehicles. As such, no VAT is payable on your end either. You’ll still need to insure your car though and, just like a PCP, there’ll be an optional maintenance package if you want it.