So, you’re on the market for a new car eh? Then there are a bunch of questions you’re going to want to ask yourself. And as much as deciding between red or blue is a big decision, so is choosing how you’re going to fund your purchase.
The decision between hire purchase and leasing can leave you rather confused trying to find the differences.
Luckily, we’ve put together a guide to explore the differences between leasing and hire purchase so you can breathe a sigh of relief.
While there are numerous different types of car financing options to choose from, most find themselves debating between leasing and hire purchase.
Trying to work out the differences between leasing and hire purchase can sometimes feel like you’re playing spot the difference with the same picture.
Fortunately, there are some pretty key differences between leasing and hire purchase to help distinguish between the two.
We’re going to break down hire purchase and car leasing to find out just what they’re all about to help you make a more informed decision.
When looking into how you’re going to gather the funds for your new purchase, like the majority of people you may not have the money to buy your car outright. Thankfully, car finance has your back.
The main reason you’d look into car finance is if you don’t have the funds to either, a) buy the car in full, or b) buy the car you want. Car finance can provide a flexible, structured payment plan to spread out the cost of your new set of wheels.
The other reason for those investing in boosting their credit score, particularly if you’re looking to improve your credit score from poor. Car finance can provide the perfect means to boost your credit score over the duration of your contract.
Car finance can be a great way to avoid facing depreciation. Having nearly half the value of your car lost within the first few years is understandably something that doesn’t entice people in buying.
Hire purchase, also known as an instalment plan is just as the name suggests – the value of the car (plus interest) is repaid through instalments.
Hire purchase is much like that of a personal car loan with a very notable twist – you don’t own the car until all payments have been made. This is because the loan is secured against the car, while a personal loan isn’t.
In most situations, a deposit is required which is roughly equivalent to 10% or more of the cost of the vehicle. Once this has been paid, the rest of the value is paid off in a period of 1-5 years. The interest can vary depending on your credit score and whether you’re looking for a brand new car or a pre-owned car.
It’s important that you have read the terms and conditions in full before entering into a hire purchase agreement. There are certain conditions that you might not have been aware of, such as the ‘option to purchase’ which is a final payment that is required to own the vehicle at the end of the contract, typically between £100 and £200.
This should be found in the HP agreement you sign at the start, but if you can’t find this it’s best to ask as the charge can vary.
Tax and maintenance are not included in an HP agreement, this can mean these costs are additional to the monthly payments – such as lays the responsibility to keep your car in optimal condition through preparing your car for winter months etc. Insurance should be sought out separately, usually requiring a fully comprehensive insurance policy.
If the contract has been taken up through a dealership, MOTs and servicing are usually heavily advised to be taken up by the dealership themselves. The cost of this can be much higher than traditional MOT and servicing garages.
Car leasing is designed to be a simple, quick and affordable way to drive the car you want. Not that we’re biased… but car leasing has tremendous benefits outside of the obvious such as spreading the cost, and making driving more affordable.
Easy and straightforward, car leasing is setup with convenience at the core – simply make an initial deposit (usually between one and several months payments) and then continue making payments across a fixed period of time.
The contract itself is quite flexible, car leasing is available in 12, 24, 36 and 48 month periods. However, the standard and more common are 24 and 48-month contracts.
Since car leasing is essentially renting the vehicle, much like a rented property you simply hand back the keys and walk away. No extortionate final charges, no hidden clauses – leaving you to look for your next car hassle-free.
You don’t even have to drive your car back to the lot, for a small fee we will deliver and collect your vehicle.
Fortunately, when comparing leasing to hire purchase, leasing is more equipped to provide a seamless experience. Packed with pretty much everything you’d need throughout your contract, bar insurance!
While maintenance of the vehicle is not covered within the contract, this is made much easier through a full 3 years warranty and servicing plan. Tax is covered within the monthly payments, while insurance should be sought out separately (fully comprehensive).
The main difference between hire purchase (HP) and car leasing is in regards to ownership. Although for the entirety of the contract you won’t own the car with hire purchase, after the ‘option to purchase’ has been made you will be the legal owner of the vehicle.
With car leasing, the costs are calculated based on the depreciation of the car. Meaning that brand new cars costs are much higher as they depreciate at a much higher rate – in contrast to older pre-owned cars that have already lost most of their value.
Unlike car leasing, contract hire provides the option to cease your contract at any point after you have paid 50% ore more of the hire purchase finance. This is called a ‘voluntary termination agreement’ and means that all future monthly payments will be cancelled.
Unfortunately, since the ‘voluntary termination agreement’ is available immediately after the 50% mark, if you go over that and then decide to terminate you will not be refunded the additional payments.
If you’re not just not quite touching the 50% amount, you’re able to pay a lump sum to settle the debt – which unsurprisingly is called a settlement figure.
While car leasing does offer an early termination option, it’s not advised as this can be very pricey. Usually, the price of the termination fee can exceed that of the remaining finance left on the contract – so you’re better just sticking with it if possible.
While hire purchase is more flexible in terms of early termination, it can work out much more expensive than car leasing due to higher interest rates and larger monthly payments.
It’s best to choose a car finance option that you’re able to afford reliably across the entire contract.
One of the more blatant stark contrasts between leasing and hire purchase is the mileage limitations. While hire purchase can be seen as quite restrictive, with the mileage it seems to do a 180.
With car leasing, the mileage limitations can be quite limiting being that you’re set so many miles throughout your contract.
It’s heavily advised that you’re honest upfront in how many miles you plan to cover (usually between 8,000 and 30,000 depending on the length of contract) as additional charges can be incurred. At 5p to 30p charged per mile over your limit, this can work out at quite the costly exercise if you’re not careful.
Since you’re not working to pay off the depreciation, hire purchase doesn’t limit your miles. This is because the end goal is to pay off the value of the car, therefore taking over the ownership of both the car and the depreciation respectively. Which can be perceived as a positive or negative depending on which way you look at it.
Depending on what exactly you’re looking for, both hire purchase and leasing can be great options to finance your next car. Whether you’re looking for flexibility, lower monthly costs, simplicity or a bad credit score option – the decision is individual to you and your specific needs.
If the cheapest option is what you’re looking for, crunching the numbers can be especially helpful. In terms of both lower monthly payments and lower overall contract costs, leasing takes the biscuit on that one.
But, as mentioned before it depends what you’re looking for – leasing is only cheaper because you’re only paying for the depreciation and mileage, not the value of the vehicle.
While hire purchase you’re paying the full value of the vehicle (plus interest) – so although leasing is cheaper, hire purchase gives you the ability to own the car (depreciation and all).
Hire purchase, since it’s ‘technically’ owned by you is your responsibility to maintain, tax, service and insure on top of monthly payments. This is where leasing comes in clutch yet again by incorporating some of those pesky charges into your monthly instalments.
The decision between choosing to lease or hire purchase your next vehicle is completely up to you. You need to weigh up your options, read up on the differences between lease and hire purchase, and decide what’s best for you.
looking to outright buy your car, it’s worth investigating options such as personal car loans, hire purchase and PCP. While if you’re looking to only rent, car leasing is your winner.
If you need any help deciding, here at Wheels4Sure we provide affordable car leasing for people with a poor credit history. We’re more than happy to talk you through our process and how to come on board, simply browse our range of vehicles or contact us directly.
Wheels4Sure provides simple and affordable car leasing for bad credit. If you have a poor or non-existent credit history, we provide a car leasing model that is based on affordability, not your credit score.
We have a 95% acceptance rate, so you can wipe those worries away and start your journey to driving the car of your dreams today.
If this has left you screaming ‘sign me up!’ and you’d like to find out more. Simply fill out our enquiry form or call us on 0203 823 1010 to speak to one of our personal advisors.
If you’re wondering what cars we have available, have a gander at our selection of car leasing deals. From a selection of premium brands such as Vauxhall, Renault, and Fiat, we’re confident we have a set of wheels that’ll catch your eye.