Auto Service World
News   June 18, 2023   by Auto Service World Staff

Understanding The Difference Between Car Leasing And PCP 

There are several ways to begin driving a new car. Two of the most popular finance options are car leasing and personal contract purchase (PCP). Both of these methods have their advantages and disadvantages, and they are both excellent choices. This article will be discussing the difference between these two methods, to help you make a decision based on your circumstances and preferences. 

What exactly is car leasing? 

Car leasing (also referred to as personal contract hire) is simply a contract agreement between you and a car leasing company, that allows you to have access to new cars of your choice for a fixed period of time. Those who opt for car leasing pay a fixed monthly price that is agreed upon before entering the agreement. You will get to drive the car until the agreement ends, where you’ll have the choice to upgrade to a newer model by entering a new deal, or simply return the car.

When it comes to car leasing, you will usually have to pay a  deposit up front, but some car leasing companies offer a no deposit option too. Overall, car leasing is a flexible and affordable way to drive a brand new car. There’s a wide range of benefits when it comes to car leasing that we will delve into further on into the article. 

What is PCP? 

Personal contract purchase or PCP deals are another affordable way to drive a new car. If you decide to enter a PCP deal, you’ll pay a deposit at the start of the agreement like a car leasing deal, and then make monthly payments going forward. With PCP, the company will decide on how much you repay based on predicting the car’s value over the duration of the term. 

PCP is essentially a finance loan, with the key difference of giving you the opportunity to own the car outright at the end of the fixed agreement. If you do decide you want to own your car towards the end, you will have to pay a balloon payment, if not you can enter into a new PCP deal or simply return the car and leave. 

The key differences between car leasing & PCP 

Although car leasing and PCP sound very similar, there are a few key differences that set them apart from one another. Below are the 3 main distinctions to help you evaluate your options. 

No interest on repayments 

When you enter a car leasing deal, you will not be charged interest. This differs from a PCP deal where you will be charged interest, usually a fixed APR between 5% and 10%. A huge benefit contract hire deals is that you do not owe any interest, making them a great option.

The option for ownership 

A great benefit of a PCP deal and the main difference between a that and a contract hire deal, is the option for ownership at the end of the agreement. If you’ve gotten to love the car you’ve been driving, and want to own it for yourself, this is possible with PCP. All you have to do is pay a lump sum (a balloon payment) which is often a hefty fee, but is a great option to have if you want it. 

Road tax included

Personal contract hire agreements will include your road tax in your monthly payments. PCP deals won’t do this, so car leasing could save you a bit of money in that respect. 

Overall, car leasing and PCP agreements are both suitable methods of buying or renting out a new car. Both of these options come with a wide range of benefits to be taken into consideration. It’s important to do your research and evaluate which option works best for you and your situation. 

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