Used car leasing

Looking for the lowest monthly payments on your next car? Used car leasing could be the answer, though PCP finance could prove better value

John Evans
Jul 27, 2022

Up until recently, PCP has proven to be the most common way for new car drivers to pay for their cars owing to its greater flexibility compared to an HP contract. Leasing, formally known as Personal Contract Hire (PCH), is quickly becoming a popular alternative to PCP thanks to its similarly low monthly payments, getting you a better car for your budget than you might have thought.

Where car leasing differs is that you won't usually have the option to purchase at the end of the contract, but rather you will have to hand the car back. This has worked well for new cars, but it's only recently that leasing has started to become available with second-hand cars, potentially offering even lower monthly payments. 

While second-hand car leases can look good on paper, new car leases can often get you a much newer car for only slightly more per month: a car that may be more compliant with the latest, stringent emission regulations, or that may have more standard equipment. It's worth getting new and used quotes, as well as comparing like-for-like with PCP finance deals, to see which offers you the best value.

So how does car leasing work? You pay a series of monthly payments, which follow an initial deposit that's usually measured as a number of monthly payments. This could range from one to nine, generally. At the end, you hand the car back with nothing to pay, provided you've stuck to the pre-agreed mileage limit and kept the car in good condition.

PCP finance, widely available on new and second-hand cars, involves a similar deposit and monthly payment structure. At the end, you can make the pre-agreed optional final payment to take ownership of the car, or you can give the keys back with nothing left to pay (again assuming you've stuck to the mileage cap and looked after the car). You also have the option to trade it in towards a new car if what it's valued at is more than what's left to pay - the settlement figure - which leaves you with money left over to put towards a new model.

While PCP deals usually only factor in the cost of the car, PCH also includes the road tax, which can prove costly under the newer bands, particularly for more expensive cars. You can also find car lease deals that allow you to include your car insurance within your monthly payment - these are sometimes referred to as Just Add Fuel deals - as well as maintenance. There is no option, however, to keep the car at the end of a lease contract: you have to return the keys when the contract ends, which makes leasing one of the simplest ways to run a car if you have no desire to eventually own the car yourself. It's ideal for people who like to change their cars regularly to keep in line with the latest trends.

PCH and PCP on used cars

Once only associated with new cars, PCP is now popular with those purchasing a used car, with several second-hand car leasing options now available. PCP is widely available on used cars - typically those up to around four years old - with leasing becoming more common on used cars.

While new car leasing is often cheaper than new car PCP finance, with used cars it can be the other way around. For this reason, it's essential to get like-for-like quotes when considering used car options - with the same upfront payment, contract length and mileage allowance - to be certain which option gives you the most bang for your buck.

As new cars lose value much faster than used ones - potentially being worth just half the initial price at two years old - opting for second-hand car leasing or used car finance should slash your monthly payments. That's because monthly payments with a lease or PCP finance scheme essentially cover the difference between what a car is worth at the start of the contract and the end.

Since a used car is likely to cost far less than a new one at the start of a finance period and subsequently lose less value over the length of the contract, this means that you can expect to pay less per month with both second-hand car leasing and PCP deals.

How does a used car lease deal work?

Think of car leasing as a long-term rental deal. You agree to lease, or rent, the car for a set term - typically anything from 12 to 48 months - and to stick to an agreed mileage limit, often around 10,000 miles per year. Then you make a monthly payment for the car - which includes the cost of road tax (this is specific to PCH leasing) - affected by the contract length, mileage limit and initial payment you opt for.

Typically the initial payment varies from the equivalent of one monthly payment to nine monthly payments. As with PCP, the more you pay upfront, the lower your monthly payments. You can sometimes opt to pay no deposit at the start of the lease, although this will make your subsequent monthly payments much higher. At the end of the contract, you hand the car back with nothing more to pay, as long as you've stuck to the agreed mileage cap and kept the car in good condition.

One important thing to note is that while you can terminate a PCH contract early, being able to do so is down to the individual leasing company's discretion and is likely to be expensive and subject to terms and conditions. In contrast, with PCP finance you have a right to terminate the contract once you've paid half of the total amount due, through something called Voluntary Termination, or you can arrange to settle the contract early - by paying the difference between the car's current value and the outstanding finance balance.

What sort of used cars are available on PCH?

Many leasing companies offer plenty of new cars to choose from, but there are generally fewer used cars on offer, so the number and type of cars available varies widely depending on the company. While new car leases often offer good value as the leasing company buys cars in bulk and passes the savings onto customers, the used cars available to lease are much more variable - they may be ex-rental cars, be sourced from auction, or anywhere else, meaning that the quality can't be guaranteed as it can with a new car.

Another thing common to many of the leasing companies is that the age and mileage of used lease cars available is often not clearly advertised. This can make it hard to gauge whether a used lease car offers good value compared with the used cars available on PCP finance elsewhere with clearly marked age and mileage details. Age and mileage are crucial factors in affecting the value of a car, so make sure you know what you're getting for your money if you are considering second-hand car leasing.

Used car PCP or PCH – which is better value?

Total costs for some second-hand car lease deals are lower than equivalent PCP deals, but more expensive in other cases. This means that if you're looking for the best value used car finance option, you have to get like-for-like quotes to see which option is best value for you.

Additionally, PCP gives you the option to buy the car at the end of the contract for a pre-agreed amount, or you can effectively 'trade it in' for another car, potentially cashing in any equity in it towards your next car. If having flexibility is important to you, PCP is a much wiser choice and offers better value.

Whether or not you can buy the car at the end of a PCH deal is down to the leasing company's discretion, however. Similarly, you have the right to end a PCP finance contract early if your circumstances change and you can no longer afford the car. This is known as Voluntary Termination. Meanwhile, with a PCH contract, terminating the contract can be problematic and expensive.

As a result, while some second-hand car leases can be slightly cheaper than equivalent used car PCP finance offers, for a large proportion of drivers second-hand car leasing offers worse value, due to their limited flexibility - with no option to buy the car or hand it back early - and fewer consumer rights, with drivers being liable to pay the whole contracted amount, even if they have to hand the car back early.

Comparing PCP and PCH deals

Whichever deals you’re comparing, always make sure quotes are for the same contract terms, mileage limits and deposits. For example, you can't assume that one £200 per month car is better value than another £300 per month deal if the contract length and deposit are different.

Get like-for-like quotes and you'll instantly be able to see which option is cheapest and be able to make an informed decision about the best type of finance for your needs.

*Representative PCP finance - Ford Fiesta:

48 monthly payments of £192
Deposit: £0
Mileage limit: 8,000 per year
Optional final payment to buy car: £2,923
Total amount payable to buy car: £11,926
Total cost of credit: £2,426
Amount borrowed: £9,500
APR: 9.9%

BuyaCar is a credit broker, not a lender. Our rates start from 6.9% APR. The rate you are offered will depend on your individual circumstances.


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