Buying a car is expensive. Even if you can afford to purchase a new or nearly-new vehicle outright, it’s likely to lose a significant portion of its value in just your first year of ownership. With the unprecedented cost of living rises we’re currently experiencing here in the UK, many of us aren’t willing to take that risk – and understandably so.
But there are alternatives. Gone are the days when you could only purchase a vehicle if you had cash in your pocket. Now, there are all kinds of different ways to buy and own a car – and two of the most popular are leasing and subscription services.
In this guide, we’re going to talk you through the benefits and potential downsides of each, explaining what car leasing and subscriptions are, how they work and who they’re suitable for.
What is a car lease?
Car leasing, otherwise known as personal contract hire (PCH) is one of the most popular ways to get your hands on a new or nearly new vehicle. When you lease a vehicle, you’re basically renting it for an extended period of time – at no point will you own the vehicle, or be given the option to buy it.
Leasing contracts usually tend to last between two and four years. After that period ends, you’ll be expected to return the car to the leasing company, who will then sell it on to its next owner. Then, the process begins again; you’ll have to find another new car and sign another lease contract.
During the lease period, as well as covering insurance, you’ll have to pay for servicing and fixing any wear and tear items as and when they fail. On top of this, you’ll be expected to return the car in good condition; if the leasing company notices any dings, dents or scrapes, you will be responsible for getting them fixed.
The same goes for mechanical defects. If you’ve exceeded the previously agreed mileage limits, failed to keep up with servicing the vehicle or haven’t resolved an obvious mechanical problem, you may incur additional charges.
However, one significant advantage of PCH is affordability. You’ll typically have to make a smaller initial payment than you would if you chose another leasing method, and your monthly payments will typically be lower too.
PCH is not to be confused with personal contract purchase (PCP) or hire purchase (HP). By contrast, PCP and HP allow you to actually purchase the vehicle and drive away in it at the end of the contract period.
Hire purchase contracts are the most straightforward, with no mileage limitations to worry about – you’re simply paying for the car month by month, rather than all in one go. However, you will have to keep the car at the end of your contract. With HP, there’s no option to give it back and switch it out for a newer model, so if you decide you want rid, you’ll have to sell it yourself once the payment plan ends.
PCP blends elements of both PCH and HP. With a PCP contract, you still pay monthly but you’re given the option to set a mileage limit – and, like PCH, your payments also go towards covering the cost of depreciation. When a PCP agreement comes to an end, you’ll have the freedom to choose whether you want to keep the car (by paying the balloon payment) or give it back to the leasing company.
Each leasing option has its advantages, so there’s no right or wrong choice here. Instead, it’s simply about choosing the right option for you. If you always want to drive a fairly new car that’s under warranty, exchanging it for a replacement model every few years, PCH makes a lot of sense. If you want to purchase a car outright and spread out the cost, HP is the option to go for. Or, if you want the freedom to choose either option, take a look at PCP.
The advantages of leasing
- It’s the most flexible way to buy or use a new vehicle, with three options to choose from: PCH, PCP and HP.
- Depending on which option you choose, you’ll have the freedom to either give the car back in exchange for a new model, or keep hold of it.
- Leasing is typically the most affordable way to get your hands on a new vehicle, particularly if you choose PCH.
- Some lease agreements include maintenance packages, saving you the hassle of having to arrange (and pay separately for) routine servicing.
- If you choose PCH or PCP, you won’t have to worry about depreciation.
- You’ll pay a fixed cost month in, month out; once your contract is agreed, your monthly bills won’t go up.
What is a car subscription?
The new kid on the block. Unlike leasing, which has been around in various forms for decades, car subscriptions are a relatively recent concept. They claim to offer improved flexibility and lower monthly costs than leasing, but are they all they’re cracked up to be?
First, let’s explain what a car subscription is and how it differs from PCH, PCP and HP. Instead of signing a long-term agreement, placing a deposit and keeping the same car for years at a time, subscriptions allow you to pay a monthly fee to access a vehicle. You won’t own it, nor will you have the chance to buy it. You won’t even keep the same car for very long.
Instead, you pay a flat rate that covers the cost of the car, maintenance and (depending on your chosen subscription provider) insurance. You will then have the freedom to choose from a fleet of different vehicles – you won’t have to stick with the same one for years at a time.
If you aspire to own a car and want the freedom to modify it or use it as you please, a subscription definitely isn’t for you. However, if you’re looking for a cost-effective way to access a new vehicle – and don’t want to commit to a long-term lease agreement – subscriptions definitely make sense.
They’re not always the most affordable choice, though. Despite the lack of a down payment, subscriptions often come with maintenance and insurance included, pushing your monthly payments up. Over an extended period of time, this may mean you’ll spend more than you would if you chose to lease or finance a vehicle.
For some, the lack of commitment and the sheer flexibility of subscriptions will make this additional cost worth it.
The advantages of a subscription
- There’s no need to commit. You won’t have to keep the same car for an extended period of time, and you can pause or cancel your subscription at any time.
- You won’t have to make a hefty down payment in order to get started. Simply sign up, pay your monthly subscription fee and off you go.
- Many subscriptions come with maintenance and insurance included, saving you the bother of arranging them separately.
- If your requirements change, you can switch to a different car at any time.
What about car rentals?
We know what you’re thinking: subscriptions sound an awful lot like renting a car. In a way, you’re right; the experience of ‘borrowing’ a car for a fixed cost, without having to worry about maintenance or insurance, is similar to whether you rent a vehicle or take out a subscription.
But there are significant differences between the two.
- Rentals normally take place over a short period of time. They’re designed for people who need a vehicle for a limited period – for example, those who are travelling abroad or moving house. Rental services are not intended for long-term use, with the maximum rental period typically being just a few weeks or months. By contrast, subscriptions are built to offer an alternative to car ownership, allowing you to continue using the same vehicle for as long as you need it.
- Rentals don’t give you a clear choice of vehicle. When you rent a car, you’ll get to pick the ‘type’ of car – like a small hatchback, large SUV and so on – but you won’t be able to specify the make, model or colour. By contrast, most subscription services allow you to choose a specific model, trim level and colour, so you’ll know exactly what you’re getting.
So, which should I choose?
That’s a tough one to answer. The reality is that all of the options discussed above have their merits, and all of them are suitable for different people. It’s not a case of one particular option being ‘better’ than the others – it’s a case of certain options being better suited to certain situations and requirements.
If you want to actually own your car, and keep the same one for an extended period of time, leasing is the way forward. We’d recommend looking into either HP or PCP, depending on your preferences, as both allow you to purchase the vehicle outright once your agreement comes to an end.
If your budget is tight and you’re looking for the most affordable route into a new or nearly new vehicle, you’ll probably want to consider PCH. Sure, you won’t be able to buy the car once your plan reaches its end, but you will benefit from lower monthly payments and have the ability to swap your car out for a newer model every two to four years.
Perhaps you don’t want to commit to owning a vehicle at all and want the freedom to switch to a different car as and when you choose. In that case, a subscription service would suit you best. You won’t be tied into a contract and you won’t have to stick with the same vehicle for a long period of time, allowing you to keep your options open.
Can’t decide? Arguably, the best all-round option is PCP, simply because it gives you the flexibility to buy the car outright (or give it back), often includes maintenance and insurance and comes in at little more than PCH in terms of monthly cost. The British public certainly seems to favour PCP, as it remains the most popular way to finance a car.
Look for your next lease deal here
Well, there you have it. Hopefully, our guide has answered all of your burning questions about car leasing and subscriptions. If you’re ready to start exploring your options and seeing what’s out there, you’re in the right place. At Cars2Buy, you can compare thousands of Personal Car Leasing and Business Car Leasing deals from the UK’s leading providers, allowing you to track down the hottest deals in minutes.
There’s never been an easier way to find your next car at a price you can afford. To get started, check out our range of new car deals today.