Head to head
Our view: leasing is cheaper month to month, but HP usually costs less overall and leaves you owning the car, which leasing never does.
Worked example
A £20,000 car on HP with £2,000 down over 48 months at 9.9% APR costs about £452 a month, a total of roughly £23,695, and you own it at the end. A similar 4-year lease might run £300 a month, totalling about £14,400 plus an initial rental, but you return the car with nothing back. Over 8 years, the HP buyer owns a paid-off car worth perhaps £6,000 and pays nothing further; the leaser has paid roughly £28,800 in rentals and still owns nothing.
Leasing (PCH) has the lower monthly payment, while HP usually costs less overall and ends with you owning the car. HP (Hire Purchase) finances the full price after your deposit, at a fixed APR over a fixed term, so the total amount payable buys you the car. Leasing (Personal Contract Hire) only rents the car for a fixed term, with a mileage limit and a handover at the end.
Choose on ownership. If you want the car at the end, choose HP; if you'd rather hand it back and start again every few years, choose leasing. The table and worked example below set both side by side on the same car, because only the totals show which is cheaper for you. The rest of the page covers repairs, early exit and depreciation risk.
HP vs leasing at a glance
HP finances the whole car and you own it; leasing rents it and you give it back. HP costs more each month but leaves you with an asset.
HP clears the full price over the term, so the car is yours after the last payment, with no mileage limits, no condition charges and no balloon to find. Leasing keeps the monthly payment low, but you own nothing and stay tied to mileage and condition terms for the whole agreement.
The two products sit at opposite ends of the ownership spectrum. HP is buying the car on instalments; leasing is a long-term rental. The monthly gap (£452 against £280 to £350 on a £20,000 car) is real, but the HP route ends with a car worth several thousand pounds, and the lease route ends with a handover. Over two or three ownership cycles, the HP buyer is driving a paid-off car while the leaser is still paying rent.
| HP | Leasing (PCH) | |
|---|---|---|
| Monthly payment | Higher (≈ £452) | Lower (≈ £280 to £350) |
| Total cost over term | ≈ £23,695, then you own it | Rental only, nothing back |
| Own the car? | Yes, at the end | No, ever |
| Mileage limits? | None | Yes, with excess charges |
| Condition charges? | None | Yes, beyond fair wear and tear |
| End of agreement | Keep the car | Hand back only |
| Best for | Owning it, keeping it long | Always changing car |
Worked example: HP vs leasing on the same car
On a £20,000 car over 48 months, HP runs about £452 a month and £23,695 in total, and then the car is yours. A comparable lease is lower each month, but you hand it back owning nothing.
Our view: if you keep cars for years, owning one outright on HP usually beats paying rent indefinitely, because the payments end and the asset stays. If you swap every few years and value the lower monthly payment and the simplicity of a handover, leasing fits better. Run the numbers on the HP calculator and the leasing calculator.
HP and leasing solve different problems. HP gives the lower total for someone who wants to end up owning; leasing gives the lower monthly payment for someone who never does. Neither is better for everyone, and the comparison only resolves once you decide what you want at the end of the agreement.
Worked example
Who each option suits
Choose HP to own the car and keep it long; lease if you always want something new and never plan to own.
- HP if: you want to own the car, plan to keep it past the term, drive unpredictable mileage, or want the lowest total cost with an asset at the end.
- Lease (PCH) if: you want the lowest monthly, change car every few years, and are happy never owning it.
- On HP you can sell the car once it's yours; on a lease there's nothing to sell, ever.
Pros and cons: HP vs leasing
HP wins on ownership and long-run cost; leasing wins on monthly and the always-new-car convenience.
| Pros | Cons | |
|---|---|---|
| HP | Own at the end, no mileage limits, sell anytime, cheaper long-run | Higher monthly, more interest than a loan, car depreciates while you own it |
| Leasing (PCH) | Lowest predictable monthly, always new, no resale hassle | Never own, no equity, mileage and condition charges, payments never end |
What about repairs, warranty and the running costs?
HP leaves you responsible for repairs once the warranty ends; a lease usually covers you with a new car under warranty for the whole term. Repair risk belongs in the comparison alongside the monthly payment.
On HP, the car is yours, which means the repair bills are yours too. A new car typically comes with a 3-year manufacturer warranty, so for the first three years of an HP deal you're covered. If you take HP over 4 or 5 years and keep the car beyond the warranty, you pay for any failure yourself. Extended warranties exist but they cost extra and have limits.
On a lease, the car is usually new and under warranty for the entire 2 to 4 year term, so repair risk sits with the manufacturer, not you. Servicing and tyres are still your responsibility (unless your lease bundles them), but unexpected failures are largely the warranty's problem. This is a real advantage of leasing, though hard to put a figure on, and it's part of why the monthly looks higher than the raw rental maths suggests.
Factor running costs into the comparison rather than treating them as separate. Add the expected repair and maintenance costs to the HP side using the total cost of ownership calculator, and treat the lease's warranty coverage as a built-in benefit. That gives a fairer comparison than either monthly figure on its own.
Can I get out of HP or a lease early?
HP gives you a legal exit at 50% via voluntary termination; a lease usually charges a hefty early-termination fee with no statutory right to walk away.
HP is regulated under the Consumer Credit Act 1974, which gives you the right of voluntary termination once you've paid 50% of the total amount payable. That's a statutory exit the lender can't refuse, and it ends with you handing the car back. You can also settle HP early with a rebate of interest under the same Act.
A personal lease is a regulated consumer hire agreement, not a credit agreement, so voluntary termination and early settlement don't apply. The Act's separate right to end a hire agreement (section 101) does not cover agreements with payments of more than £1,500 a year (£125 a month), so on a typical car lease there's no statutory right to terminate early. Leasing companies usually charge an early-termination fee that can amount to most of the remaining rentals, sometimes with a penalty on top. If flexibility matters (you might move abroad, change jobs or need a different car), HP's voluntary-termination right is an advantage to weigh alongside the cost.
Depreciation: who carries the risk?
On HP you carry the depreciation directly because you own the car; on a lease the leasing company carries it, but you've already paid for it in the rental. The question is whether you'd rather bear the risk yourself or pay a fixed price to hand it to someone else.
When you buy on HP, the car's falling value is yours. If it holds its value well, you recover more when you sell or part-exchange; if it depreciates faster than expected, you absorb the loss, and on HP that loss is real because the car is your asset. This is the hidden risk of HP: a heavy depreciator can wipe out the ownership advantage, particularly if you sell within the first three years when values fall fastest.
On a lease, the leasing company has already priced the expected depreciation into your rentals, plus a margin for the risk. If the car holds its value better than forecast, the leasing company keeps the upside; if its value falls further, they take the loss. Your rental is fixed either way. You've paid for that certainty in the monthly, which is part of why a lease rarely beats HP on raw total cost.
On balance, if you plan to keep the car well past the finance term, HP wins, because the depreciation has already happened by the time you own it outright and you benefit from any residual value. If you'd be swapping within three or four years and want no exposure to a sudden market drop, a lease hands that risk to the leasing company, for a price. Run the car's expected resale value through the total cost of ownership calculator to see how much the depreciation maths moves the comparison.
The three-quote rule when you're deciding
Whichever way you lean, get at least three written quotes, because the spread between the best and worst HP deal, and the best and worst lease, is often thousands of pounds.
For HP, compare a dealer quote, a broker quote, and a bank or online lender, and ask each for the total amount payable alongside the monthly. The APR is what drives the total, and a 2 to 3 percentage point difference between lenders on a £20,000 car over four years comes to about £800 to £1,200. Dealers sometimes match a cheaper outside quote to keep the finance commission, so a broker's figure is a useful lever even if you end up financing on the forecourt.
For leasing, compare at least two brokers and the manufacturer's own finance arm, and look past the headline monthly to the initial rental, the mileage cap, and the pence-per-mile excess rate. A lease that's £20 a month cheaper but charges double for excess miles can cost more overall if your mileage creeps up. The same three-quote discipline applies on both sides of the HP-vs-lease decision.
Work out your own numbers
Compare the monthly and the total on both, and factor in the car you keep with HP and the repair risk you absorb.
Use the HP calculator and the leasing calculator, then check each deal's true APR and interest. Add running costs on the total cost of ownership calculator so the comparison includes repairs, warranty coverage, and the depreciation you'd carry on HP. The total cost over the years you'll keep a car, not the monthly payment alone, decides whether owning on HP or renting on a lease is cheaper for you.
Frequently asked
Is HP or leasing cheaper?
Do you own the car with HP or leasing?
Does HP have mileage limits like leasing?
Which has the lower monthly payment, HP or leasing?
Can I sell the car during HP or a lease?
Is HP or leasing better for high mileage?
What happens at the end of HP versus a lease?
Who carries the depreciation risk on HP versus a lease?
How do I negotiate the best HP or lease deal?
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