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PCP VS LEASE: How to choose your car finance 2018

The demand to lease cars has grown over the years, so we thought we would have a PCP VS LEASE showdown and see who wins! For many years car financing was done via Hire Purchase. But recently a new product has been introduced, now known to be PCP or Personal Contract Purchase.

This finance package opened up a huge potential market in the motor trade never seen in the UK. It allowed an everyday consumer to be able to afford a brand new car and reap the rewards. New vehicles have always been the focus of a manufacturer lead finance company. They have very little focus on the interest earned through finance as they do for selling the car. People could not believe they would have incentives which outweigh the interest costs. In reality, it is an easy way for them to anticipate renewal dates (end of contract). This allows the approach before the end of the contract to keep the consumer out of the market.

Personal or Business Contract hire which is more commonly known as a vehicle lease, is beginning to make headway in the vehicle finance world. Business leasing has actually always been there, but the general public are now starting to understand the benefits of a personal lease. The demand has become huge! The world is changing. The public no longer looks at cars as a huge purchase, they look at it as a monthly payment. In fact, most manufacturers operate on 90% finance against all their car purchases.

The reason why PCP VS LEASE makes an interesting topic, is this. What is better for you? What would allow you to change more often? These are all the questions we will cover in this article.

Personal Contract Purchase (PCP)

Unfortunately PCP has not always had the best name in the industry among consumers. This makes PCP VS LEASE discussion interesting. It can be difficult to get the information across in a manner people understand. Not every person has an understanding of how finance works and that's okay. In fact that is the reason you have services like this to give you a helping hand.

How does PCP work?

In order for us to cover the questions we set, we must first understand how PCP works. In order for it to work it has 4 main factors to consider:

- Invoice price of the car (After Discount)
- Duration of the Term
- Anticipated mileage per year
- Deposit (By you and the manufacturer)

 In short, PCP allows you to pay for the anticipated depreciation of the vehicle instead of the full cost.

Lets do an example.

The vehicle you're trying to buy is being sold for £30,000. You want to keep the car for 3 years and your anticipated mileage is 10000 per year. The system then calculates what the vehicle will be worth when its 3 years old and has 30000 miles on the clock. That calculation is called Guaranteed Future Value (GFV) or Residual Value. In this example, the GFV will be £15000. So, where on a hire purchase agreement you would pay for the full £30000 of the car. Now you only pay for the duration of ownership, which would be £15000 plus any interest. The £15000 is then deducted of any deposit you may want to put in and calculated against the agreed term.

With PCP you have the option of purchasing your vehicle at the end of the contract.

We have included Parkers PCP car finance video below to help

How quick can you change?

Most of you who have been buying a new car for a while will know, you always get a call 3, 6, 9 or 12 months before to change your car. They invite you in and place the idea of you being able to get a new car for a "similar payment".

This is where it gets interesting.

You are at the dealership awaiting to find out the payments on your new car. It's important to know, most of the time unless you put a very large deposit down or got an insane deal on your car. You will probably be in negative equity. Negative equity is when your car is worth less than the finance owed. The reason behind this, isn't because you got ripped off or mis-sold. Remember I said its manufacturer lead? Well the guaranteed future values are also inflated to make the payments cheaper. Which means, what they think the car is worth at the end of the contract and what it is actually worth. Can often have a huge variance and hence have an effect on your payments. As well as having a huge impact on your ability to change early if you are in negative equity.

Car finance is designed to run its course and is not made with changing early in mind. This is the reason why PCP vs Lease is a topic worth discussing. You need to be fully equipped with the right information to make a decision.

In conclusion. When it comes to changing, you will most likely have to put a larger deposit down or extend the initial term. Or even worse, downgrade on the specification of the car. Some factors which impact this like inflation, can not be helped. But it is largely dependent on the deal quality.

Personal/Business Contract Hire Cars: PCP VS LEASE

Leasing has had a huge impact on the American motor industry as it has been widely popular for a long time. In the UK people are now starting to discover leasing as a huge potential of getting great value for money. Leasing in the UK has been mainly used by businesses. It's classed as a long term rental and does not have a huge impact on how much you can borrow against your company. Questions about leasing are being raised more often and you need to know how it works. Fortunately, a lot of our discussion thus far (PCP) has covered a huge ground of it.

Contract Hire and PCP work in a similar way. Think of lease as a simple and efficient brother who takes care of the details and lets you enjoy the ride. You don't need to worry about a lot of formalities PCP brings. For example. You never own the vehicle, so no need to shop around for the best part exchange price. You simply hand it back and start again.

How often can you change your car with a lease?

A lease almost always works out cheaper on a like for like basis. This means you can shorten the term and actually know when you can change. Not being dependent on the car market 3 into 4 years of your Personal Contract Purchase agreement. Crossing your fingers, hoping there is no negative equity. In fact, the only thing you need worry about is if the payment is within your budget.

Deposits are based on the amount of payments you want to put up front. Usually you would look at 3 or 6 payments up front followed by 23 or 35 consecutive payments. Some cars actually work out better on a two year agreement and you can choose to put a little or no deposit.

Something to consider

If your intention is to keep the car at the end of your term, a car lease is not for you. This finance product is designed for changing frequently with no hassle. Low monthly payments allow for a shorter term and hence frequent change. Keeping you up to date with the latest cars.

We have provided a video below to explain the benefits of Contract Hire Leasing.


Please note, both of these products have restricted mileage. When considering any of these products, make sure you are as forward thinking as you can be. There is normally a pence per mile charge at the end of the term. This charge goes up depending on the value of the car. Naturally a Vauxhall Corsa pence per mile charge is less than that of an Audi A6.

The condition of the vehicle when handed back has to be within the agreed guide lines. These guidelines can be found either in your finance pack or from BVRLA. Sometimes your finance company will provide you with a tool to measure any damage. This should give you a clear understanding of what to expect when handing back your car. This almost brings our PCP VS LEASE discussion to the end.

PCP VS LEASE Conclusion

At this stage you should have a good idea of what route you want to take. In my personal opinion, PCP is becoming more of a financial package designed for used cars as opposed to new. Lease seems an obvious choice. The frequency of guaranteed change as you can take a shorter term for the same payment makes this a very attractive option.

However, if you want a stop gap of taking advantage of low monthly payments and have intention of buying at the end. I would recommend Personal Contract Purchase. It is still a great product and still used in dealerships nationwide. When it comes to PCP vs Lease winner, it is a difficult one.

In reality it all comes down to your circumstances, one product will always be better than the other in certain situations. The biggest piece of advice I can give you is, don't focus on the price of the car. Focus on the cost of ownership for the duration of the term.

Something tells me, the gap between the lease and contract purchase for new cars will become bigger and bigger over the years. The market and consumer thinking is shifting towards payment lead car sales. Fortunately for vehicle leasing, this is their home ground. Low monthly payment and shorter term, what more is there to ask for?

If you have any further questions regarding this topic, please call Alexander Stone Ltd on 0191 691 1351 or email on

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Posted on 14th February 2018 at 12:54 PM

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