Distinguishing Between Car Leasing and PCP

When contemplating the purchase of a new car, two popular financing options to consider are car leasing and Personal Contract Purchase (PCP). These methods offer distinct features and considerations tailored to various budgets and lifestyles. To help you make an informed decision, this guide outlines the differences between PCP and leasing.

 

What is Car Leasing?

Car leasing involves renting a vehicle for a fixed period, typically ranging from two to four years. Although the lease duration is flexible, it ensures regular upgrades without the burden of a substantial balloon payment.

Ownership: With car leasing, you typically won’t own the vehicle; it is returned to the finance company at the contract’s conclusion. This arrangement facilitates frequent upgrades and eliminates the need for a significant final payment. (However, in some cases you will have the option of buying the vehicle at the end of the lease, but this is not captured at the beginning of the agreement – you wait until the end of the agreement and request a price to purchase.)

 

What is PCP? (Personal Contract Purchase)

PCP is a car financing method similar to a loan, where a deposit is made, and the remaining car value is divided over the agreed period. PCP includes a substantial balloon payment at the contract’s end, based on the car’s guaranteed minimum future value (GFV).

Ownership Options: PCP provides flexibility at the end of the agreement, allowing you to either pay the balloon payment and own the vehicle, return it, or trade it in for an upgrade.

 

What are they Key Differences between the two?

  • Leasing/Renting vs. Option to Buy (PCP): Car leasing involves renting a vehicle, returned at the contract end. PCP allows you to buy the car after making monthly instalments.
  • Interest Payment: Leasing interest is factored into the leasing quotation and is fixed during the term of the lease and will not fluctuate. PCP involves interest payments, akin to a loan, linked to the finance company’s interest rate.
  • New Car and Warranty: Leasing offers a new car within the manufacturer’s warranty. PCP allows the choice between new and used cars, with potential differences in warranty coverage.
  • Initial Payment or Deposit: Leasing requires an initial payment (not refundable). PCP involves a deposit influencing monthly payments, with an additional balloon payment at the end for ownership.
  • Early Contract Termination: Leasing may incur early termination fees. PCP allows the legal return of the car after paying at least 50% of the total amount.
  • Returning the Car: Leasing involves returning the car, ideal for those wanting a new car regularly. PCP offers options to return, own, or trade in the car at the end of the agreement.
  • Balloon Payment: PCP has a substantial balloon payment at the end for ownership.
  • Equity from PCP: The balloon payment is based on the car’s future value; however, it is important to remember that excess mileage or depreciation can affect equity.

 

Choosing Between Leasing and PCP

To determine the better option you will need to consider factors such as the desire for ownership, how frequently you would like car upgrades, financial considerations, potential future changes in circumstances, and personal preferences.

To help you make that decision here are the key benefits of both:

 

Car Leasing:

  • Low fixed monthly costs
  • Regular upgrades
  • Low initial payment
  • No balloon payment
  • Reduced extra costs
  • Quick and easy leasing process
  • No concerns about depreciation
  • Easy returns

 

PCP:

  • Ownership option
  • Choice between returning, owning, or upgrading
  • Flexibility in deposit amount
  • Balloon payment for ownership
  • Equity considerations
  • Option to trade in for the next car

Evaluate these benefits to align with your preferences and financial situation when deciding between car leasing and PCP. We offer flexible and affordable car leasing and PCP/BCP solutions for both personal and business customers. We can supply everything from eco-friendly hybrids to high-performance sports cars by any finance method, so our team of experts are sure to find your perfect vehicle at the right price.

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