UK Car Leasing vs Buying Compared

Personal contract hire (PCH) is a long-term rental of a vehicle for a fixed term, with no ownership option at the end. PCH differs from PCP in that there is no balloon and no equity in the vehicle at the end of the contract. This article compares PCH against outright purchase and PCP.

How PCH works

The customer pays an initial rental (typically 1, 3, 6 or 9 months upfront) followed by monthly rentals for the term, typically 24, 36 or 48 months. VED is included in the monthly payment for the duration of the contract. The vehicle is returned at the end subject to condition and mileage criteria.

Costs included in PCH

The standard PCH includes vehicle tax and the use of the car. Insurance is typically arranged separately. Servicing can be included as a maintenance package or arranged on a pay-as-you-go basis. Excess mileage charges apply if annual mileage exceeds the agreed cap.

End-of-contract considerations

At the end of PCH, the vehicle is returned to the leasing company. Condition is assessed against the BVRLA Fair Wear and Tear standard; charges apply for damage beyond fair wear and tear. Mileage is checked against the contractual limit; excess mileage charges apply per mile beyond the limit.

When leasing wins

Leasing typically wins on monthly cost for buyers who want predictability and who change cars every two to four years. It also fits salary sacrifice arrangements where the employer offers an electric vehicle scheme. Leasing avoids depreciation risk because the leasing company carries the residual value risk.

When buying wins

Outright purchase typically wins on total cost over long ownership periods (five or more years), because the buyer keeps the asset rather than returning it. Used-car purchase in particular tends to produce the lowest total cost per year over a long holding period.

PCH mechanics in detail

Personal Contract Hire (PCH) is a long-term rental of a vehicle for a fixed term, with no ownership option at the end. The customer pays an initial rental (typically 1, 3, 6, or 9 months upfront) followed by monthly rentals for the term, typically 24, 36, or 48 months. The initial rental is effectively a deposit that reduces the monthly payment for the remainder of the term.

Vehicle Excise Duty (VED, road tax) is included in the monthly payment for the duration of the contract. The leasing company holds the V5 registration document and is the registered keeper; the customer is responsible for fines, parking, and traffic infringements but is not the legal owner.

The vehicle is returned at the end subject to condition and mileage criteria. The BVRLA Fair Wear and Tear standard defines what counts as fair wear and what attracts charges. Excess mileage charges apply if the annual mileage exceeds the agreed cap. Damage beyond fair wear attracts repair charges.

PCH agreements are typically not regulated by the FCA as consumer credit because there is no credit being advanced. The customer is paying for the use of the vehicle, not buying it. Conduct standards are typically set by BVRLA membership rather than FCA rules. Disputes can be referred to the BVRLA's dispute resolution scheme for member companies.

What is included in PCH

The standard PCH includes vehicle tax and the use of the car for the agreed term and mileage. Insurance is typically arranged separately; the customer needs to insure the leased vehicle on their own policy. Servicing can be included as a maintenance package add-on (typically adds GBP 10 to GBP 30 per month) or arranged on a pay-as-you-go basis through any garage that meets manufacturer standards.

Manufacturer warranty applies for the warranty period (typically 3 years for new cars, longer for some manufacturers). Out-of-warranty issues during the lease are typically the customer's responsibility unless a maintenance package covers them.

Replacement vehicle cover is sometimes included (typically for accidents covered by insurance); otherwise the customer needs to arrange a hire car if the leased vehicle is unavailable. Some leases include accident management services to coordinate insurance claims and repairs.

Tyre cover, breakdown cover, and other extras can be added to the monthly cost. Standalone arrangements may be cheaper but add management complexity. The total cost comparison (lease, insurance, maintenance, tyres, breakdown) gives the full picture vs ownership.

End-of-contract considerations

At the end of PCH, the vehicle is returned to the leasing company. Condition is assessed against the BVRLA Fair Wear and Tear standard; charges apply for damage beyond fair wear and tear. The customer should know the standard before returning the vehicle to avoid unexpected charges.

Common end-of-contract charges include: dents beyond a defined size and depth; scratches beyond paint repair; tyre wear beyond legal minimum plus normal wear; missing items (mats, spare key, manual); interior damage. The BVRLA produces detailed guidance with photographic examples of acceptable and unacceptable wear.

Mileage is checked against the contractual limit. Excess mileage charges apply per mile beyond the limit, typically 5p to 15p per mile depending on the vehicle and contract. The excess mileage rate is typically higher than the per-mile cost would have been if higher mileage had been agreed at the outset; estimating mileage accurately at the start reduces this cost.

Returning the vehicle clean and with all original items reduces the assessment risk. Photographs at return provide evidence of condition. Some customers arrange independent inspection before return to identify any items that should be addressed before the formal handover.

When leasing wins

Leasing typically wins on monthly cost for buyers who want predictability and who change cars every 2 to 4 years. The monthly cost is fixed for the lease term, including VED. The lack of ownership equity is offset by no responsibility for selling or disposing of the vehicle at the end.

It also fits salary sacrifice arrangements where the employer offers an EV scheme. For higher-rate taxpayers on electric vehicles, salary sacrifice leasing combines low BiK tax with bundled costs (insurance, service, maintenance) for a competitive net monthly cost.

Leasing avoids depreciation risk because the leasing company carries the residual value risk. If the vehicle's value falls more than expected, the leasing company absorbs the loss. This protection is particularly valuable for vehicles with volatile residual values (such as newer EV models or vehicles in declining markets).

When buying wins

Outright purchase typically wins on total cost over long ownership periods (5+ years), because the buyer keeps the asset rather than returning it. The depreciation has been paid for; the buyer captures any retained value when eventually selling.

Used-car purchase in particular tends to produce the lowest total cost per year over a long holding period. Buying a 3-year-old used car at the bottom of the steep depreciation curve and holding for 5+ years typically produces 15p to 30p per mile in total cost, much lower than equivalent new-car leasing or PCP.

For buyers who customise their vehicles, lease may not be suitable because modifications are typically not allowed. Cash or finance purchase allows modifications without lease return concerns.

For buyers who keep cars long-term (8+ years), the lease economics rarely make sense. The lease company would not offer 8-year terms because the residual value uncertainty is too high; the customer would have to roll multiple lease terms, each with new initial rentals and depreciation costs, accumulating to more than ownership over the same period.

Worked total cost example: lease vs PCP vs cash over 4 years

A worked example helps quantify the choice. Consider a household choosing between leasing, PCP, and cash purchase of a Tesla Model 3 (typical list price around GBP 40,000) over a 4-year ownership period with annual mileage of 10,000.

Lease (PCH) option: initial rental of GBP 4,000 plus monthly rental of GBP 450 for 48 months. Total over 4 years: GBP 25,600. Includes road tax, no early settlement option. No vehicle owned at end; car returned subject to BVRLA Fair Wear and Tear standards.

PCP option: deposit of GBP 8,000, monthly payment of GBP 380 for 48 months, optional final balloon (GMFV) of GBP 14,500. Total if optional final paid: GBP 8,000 + (GBP 380 x 48) + GBP 14,500 = GBP 40,740. Total if car handed back: GBP 26,240, with no vehicle owned. PCP includes the option to refinance the balloon or trade in at end.

Cash purchase: GBP 40,000 paid upfront. Vehicle owned throughout; depreciation absorbs around 50% of value in 4 years (typical for the model), so estimated trade-in or sale value GBP 20,000. Net cost over 4 years: GBP 20,000 plus running costs. No interest paid; capital tied up.

For a higher-rate taxpayer with GBP 40,000 in a Stocks and Shares ISA earning a typical equity return, the opportunity cost of using cash is significant. Lease at GBP 25,600 over 4 years vs cash at GBP 20,000 net cost: lease costs GBP 5,600 more in nominal terms but preserves GBP 40,000 of investment capital.

The practical takeaway: total cost over the ownership period depends on the specific deal, the depreciation curve, and the cost of capital; comparing all three options for a specific vehicle and use pattern gives the basis for decision.

BVRLA Fair Wear and Tear standards in detail

The British Vehicle Rental and Leasing Association (BVRLA) publishes the standard Fair Wear and Tear guide used by most UK leasing companies. The guide defines what counts as acceptable wear (no charge) versus damage (chargeable at lease end). Understanding the standards before the lease ends helps avoid unexpected charges.

Acceptable wear includes: minor stone chips on the bonnet (typically up to defined size and quantity); small scratches that polish out; light interior wear consistent with reasonable use. Charges apply for: dents beyond a defined size and depth; deep scratches requiring paint repair; major interior damage (such as burns, tears, or stains); missing items (mats, spare key, manual, parcel shelf).

Tyre wear has specific rules. The legal minimum tread is 1.6mm but the BVRLA standard expects 1.6mm or more across the central three-quarters of the breadth; tyres below this require replacement before return. Mismatched tyres or non-OEM tyres may also attract charges.

Mileage limits in the lease contract are strictly enforced. Excess mileage charges apply per mile beyond the contractual cap (typically 5p to 15p per mile depending on vehicle and contract). For a 10,000-mile contract where the customer drives 14,000 miles per year, the 4-year overrun of 16,000 miles at 10p per mile would be GBP 1,600 in excess mileage charges.

The practical takeaway: review the lease's fair wear and tear schedule at signing; maintain the vehicle to standard throughout; arrange professional pre-return inspection if uncertain about condition; address minor issues before handover where economic.

End-of-contract handover and damage assessment

The end-of-contract handover for leased vehicles involves specific processes. The leasing company typically conducts a return inspection; the vehicle is assessed against the BVRLA Fair Wear and Tear standard.

Common end-of-contract charges: dents beyond the BVRLA size and depth threshold (typically 25mm diameter); scratches beyond paint-repair limits; missing items (parcel shelf, spare key, manual, mats); tyre wear below the BVRLA standard (often 2mm minimum, stricter than the legal 1.6mm).

For lessees concerned about end-of-contract charges, pre-return inspection by an independent assessor (typically GBP 100 to GBP 200) can identify issues before the formal handover, allowing the lessee to address them at lower cost than the leasing company's charges.

Disclaimer

This article provides general information based on rules and figures published by UK government and regulator sources as of May 2026. It is not personal financial, legal, immigration or tax advice. Rules, fees and figures change and individual circumstances vary. Readers should check primary sources or consult a qualified, regulated adviser before acting on any information here.

Frequently asked questions

Can a PCH be ended early?

Yes, but early termination fees apply. The fee is typically a percentage of the remaining rentals; some leases charge 50% of remaining rentals, others charge the full remaining liability. The specific terms are in the contract. Early termination on PCH is typically expensive because the leasing company has committed to depreciation that it now must absorb early. Some leases include early termination provisions for life events (such as redundancy or relocation).

Are PCH agreements covered by FCA rules?

PCH is not consumer credit so it is not regulated under CONC. Conduct rules from the BVRLA membership code apply for participating lessors. Most major leasing companies are BVRLA members and follow the code. The BVRLA dispute resolution scheme handles complaints against member companies. This is a lower level of consumer protection than FCA regulation provides for car finance.

Can mileage limits be increased mid-contract?

Many lessors allow contract amendments to increase mileage at additional monthly cost. Lower per-mile pricing typically applies than the end-of-contract excess mileage rate. Reviewing actual mileage against contract after 6 to 12 months and increasing the agreed mileage if necessary can be materially cheaper than paying excess mileage at the end.

Is GAP insurance relevant for PCH?

Not in the same way as for PCP or HP. Because the customer does not own the car, the insurance settlement goes to the leasing company; the question is what GAP-style early termination cover is included. Some lessors include this as standard (the lease ends if the vehicle is written off, with no penalty to the customer); others may charge for early termination after a write-off. Reviewing the lease terms before signing confirms the position.

Can a leased car be customised?

Modifications are typically not allowed because the leasing company owns the vehicle and needs to return it in its original specification. Approved accessories may be permitted by some lessors. Any modification must typically be removed before the vehicle is returned, with the cost of removal and any damage at the customer's expense. For buyers who want to customise, ownership is typically the better choice.

Is salary sacrifice leasing always worthwhile?

For higher-rate taxpayers on electric vehicles, typically yes. The combination of low BiK tax, bundled insurance and maintenance, and the gross-pay benefit of salary sacrifice produces a competitive monthly net cost. For basic-rate taxpayers, the tax saving is smaller and the case is less compelling. For non-electric vehicles, the BiK tax is much higher and salary sacrifice typically does not produce a cost advantage.

What happens if a leased vehicle is stolen?

The customer's car insurance handles the claim. The insurance payout typically goes to the leasing company (as the registered owner) rather than the customer. The lease may continue with a replacement vehicle (if the lease terms include this) or may be terminated. The specific arrangements are in the lease contract.

Frequently asked questions

Can a PCH be ended early?

Yes, but early termination fees apply. The fee is typically a percentage of the remaining rentals; some leases charge 50% of remaining rentals, others charge the full remaining liability. The specific terms are in the contract. Early termination on PCH is typically expensive because the leasing company has committed to depreciation that it now must absorb early. Some leases include early termination provisions for life events (such as redundancy or relocation).

Are PCH agreements covered by FCA rules?

PCH is not consumer credit so it is not regulated under CONC. Conduct rules from the BVRLA membership code apply for participating lessors. Most major leasing companies are BVRLA members and follow the code. The BVRLA dispute resolution scheme handles complaints against member companies. This is a lower level of consumer protection than FCA regulation provides for car finance.

Can mileage limits be increased mid-contract?

Many lessors allow contract amendments to increase mileage at additional monthly cost. Lower per-mile pricing typically applies than the end-of-contract excess mileage rate. Reviewing actual mileage against contract after 6 to 12 months and increasing the agreed mileage if necessary can be materially cheaper than paying excess mileage at the end.

Is GAP insurance relevant for PCH?

Not in the same way as for PCP or HP. Because the customer does not own the car, the insurance settlement goes to the leasing company; the question is what GAP-style early termination cover is included. Some lessors include this as standard (the lease ends if the vehicle is written off, with no penalty to the customer); others may charge for early termination after a write-off. Reviewing the lease terms before signing confirms the position.

Can a leased car be customised?

Modifications are typically not allowed because the leasing company owns the vehicle and needs to return it in its original specification. Approved accessories may be permitted by some lessors. Any modification must typically be removed before the vehicle is returned, with the cost of removal and any damage at the customer's expense. For buyers who want to customise, ownership is typically the better choice.

Is salary sacrifice leasing always worthwhile?

For higher-rate taxpayers on electric vehicles, typically yes. The combination of low BiK tax, bundled insurance and maintenance, and the gross-pay benefit of salary sacrifice produces a competitive monthly net cost. For basic-rate taxpayers, the tax saving is smaller and the case is less compelling. For non-electric vehicles, the BiK tax is much higher and salary sacrifice typically does not produce a cost advantage.

What happens if a leased vehicle is stolen?

The customer's car insurance handles the claim. The insurance payout typically goes to the leasing company (as the registered owner) rather than the customer. The lease may continue with a replacement vehicle (if the lease terms include this) or may be terminated. The specific arrangements are in the lease contract.