Both hire purchase and leasing are car finance options to help get you behind the wheel of your chosen car. Here we will compare leasing vs hire purchase to help you make the right decision for you.

What is the difference between Hire Purchase (HP) and leasing a car?

The core difference between hire purchase (HP) and car leasing is that you own the car at the end of your HP contract. With a lease, once the contract is up you hand the car back.

Here’s how both stack up against each other when it comes to things like owning the car and upfront payments:

How does car leasing work?

With car leasing, you effectively rent the car and return it to the leasing company at the end of the contract. It works like this:

• Choose the car you want to drive
• Agree on a rental period with the leasing company and pay an initial upfront payment
• Make fixed monthly payments for the term of the agreement
• Return the car at the end of the leasing agreement.

What are the advantages and disadvantages of car leasing?

Car leasing has both pros and cons.

Advantages:

• Often monthly payments will be low
• Payments are fixed for the length of the contract
• You may be able to add on a maintenance package for an extra cost.

Disadvantages:

• Often only available on new cars
• You won’t own the vehicle and must return it at the end of the contract
• If you hand it back early, you’ll pay a fee
• Your lease agreement will include agreed mileage limits – if you go over, you’ll be charged
• You may incur penalties for damage to the vehicle beyond fair wear and tear.

Is leasing the same as PCP?

Leasing isn’t the same as personal contract purchase (PCP). With PCP, you take out finance on a car and make monthly payments to the finance company. At the end of the contract term, you have the option to make a balloon payment to buy the car outright. Or you can hand the car back and walk away from the deal or use the equity you’ve built up in the car to switch to a new PCP deal on a different car.

With car leasing, you don’t build up any equity in the car and must hand it back at the end of the agreement.

How does Hire Purchase work?

Hire purchase is a type of car finance that allows you to spread out the cost of buying a car. You pay a deposit towards the car then make fixed monthly payments until the end of the contract. At the end of the term and once you’ve made your final payment, you’ll own the car outright.

What are the pros and cons of Hire Purchase?

The advantages and disadvantages of HP include:

Advantages:

• You’ll own the car once you’ve made your final payment
• There are no mileage restrictions
• You may be able to get HP with a poor credit history.

Disadvantages:

• Monthly payments may be higher than leasing
• You only own the car outright at the end of the deal
• No option to sell or modify the car until you own it outright.

Is leasing cheaper than HP?

It depends on the car you want to go for and the leasing deal you choose. Often, leasing is available on newer models and may offer a cheaper way to drive the latest cars. Hire purchase on the other hand requires a deposit of usually around 10% of the value of the car. Your monthly payments will also likely be higher with HP as each payment goes towards paying off the value of the car. One of the main differences between HP compared with leasing, is that you’ll own the car at the end of the contract.

Which is best for me?

Hire purchase may be a good option if you’re looking to own the car eventually or are interested in a used car. But if you want to drive a new car and aren’t bothered about owning it, then leasing may suit you.

Other car finance options

HP and leasing aren’t the only two car finance options you can choose from. With a personal loan, you’ll buy the car outright at the start and pay the amount borrowed, plus interest, back to the lender. PCP deals involve a deposit and monthly payments, with the option to buy the car at the end of the deal, hand it back to the dealer, or swap for a different car on a new deal.

How Asda Can Help

At Asda, we can help you find the right car loan from our panel of trusted UK lenders. Our wide panel of UK lenders provide offers based on your personal credit situation and are tailored to your specific borrowing needs.

You can check your eligibility without it affecting your credit score.

If no offers are available, our free and impartial Financial Support service will help you understand what options are available to you.

Compare car finance deals using our trusted panel of lenders today!

Hire Purchase vs. Leasing FAQs

What is the difference between HP and leasing?

With HP you pay a deposit at the start of the deal, with your monthly payments going towards the value of the car. Once you’ve made your final payment, you own the car outright. With leasing, you pay monthly to effectively rent the car. Once the lease is up, you give the car back.

Is it better to buy than lease?

This depends on what you want to do. If you want to own the car outright, then HP might be a better option for you. But if you’re not bothered about owning the car at the end of the deal and are happy to hand it back, then leasing may be the right choice.

Do you lose more money leasing a car?

Car leasing is effectively like renting your car, so the payments you make don’t go towards owning it. With HP, on the other hand, each payment chips away at the total cost of the car building towards the goal of owning it at the end of the deal.

Do you pay road tax on a leased car?

Yes, you pay road tax on a leased car up until the end of the lease. Often, this is included in the cost of the lease.