In this article:
Buying outright isn’t the only way to get on the road. Drivers now have more options than ever, including car leasing and financing. But with more choices, comes more factors to consider. It brings us to the big question: are you better off owning your vehicle, or leasing it?
To help you decide, this guide breaks down the cost of leasing a car versus the total cost of owning one, exploring key factors like depreciation and fuel type, to inform your decision.
Breaking down the cost of owning a car
Deciding how to pay for your new vehicle is just as important as choosing the model. Whether you have your eye on a Vauxhall Corsa, a Nissan Qashqai or a Tesla Model 3, it can be vital to look beyond the showroom price.
Naturally, many drivers focus on the upfront price of a car or the size of the monthly payment, but those figures don’t always reflect the vehicle’s long-term cost.
When you look at the same vehicle through the Total Cost of Ownership (TCO) lens, the picture often changes. That’s because the TCO accounts for everything that happens over time, including fuel costs, maintenance, repairs, insurance, depreciation, resale value and more. These all come at an additional expense, making the cost of owning a car, a little higher than the initial price tag.
Ultimately, it’s essential to consider the cost of running your car and its future resale potential.
Understanding car depreciation
Car depreciation is the difference between what you pay for a car and what it’s worth when you sell it. It’s a significant expense for drivers, yet because it doesn’t come out of your bank account each month, it’s easy to forget.
We analysed the market to see how much value popular cars could lose. When you buy a new or used car outright – whether with cash or a bank loan – you take the risk in the value drop. Below, we’ve highlighted three of the most popular used car models as examples:
-
A Vauxhall Astra averaged £20,083 at one year old, but by three years old, its value had fallen by 41% - a drop of £8,334. That’s a loss of £347 every single month.
-
A Kia Sportage’s value could drop by 41% between years one and three (a loss of £11,933). Broken down, that depreciation could cost you roughly £497 per month.
-
Between its first and third year, a Toyota Corolla could see a 32% loss in value, dropping from £23,981 to £16,221. That’s £7,760 over two years, equivalent to losing around £323 per month.
For drivers who keep their cars for many years (six or more), depreciation could be less noticeable, as the curve flattens over time.
For drivers who change cars every two or three years, this decrease in value is a recognised cost when reselling.
While depreciation is often unavoidable, switching to an electric vehicle (EV) with a home charger could save you approximately 8.5p per mile compared to petrol. On a 12,000-mile year, that amounts to £85 every month in fuel savings.
The benefits of car ownership
1. Mileage freedom
Leasing contracts come with mileage limits. If you’re a high-mileage commuter or you frequently travel abroad, for example, you might drive more than 15,000 miles a year. In this case, owning a car could help you avoid excess mileage charges.
2. Customisation control
Ownership means you can modify your vehicle without restrictions. Want to add a tow bar, roof rack or tinted windows? You can do whatever you like with your own vehicle. With a lease, you usually have to return the car as you received it.
3. Flexibility to sell
Leasing locks you into a fixed term, but buying a car outright means you’re free to sell it whenever you choose. So, if your financial situation changes or you simply want a different car, you can sell or trade it in at any time.
The cost of electric car ownership
Applying the TCO lens reveals a significant difference between choosing a traditional petrol or diesel car (an Internal Combustion Engine, or ICE) and opting for an EV.
If you can charge at home, EVs like the Renault Scenic E-Tech, Peugeot E-2008 and Cupra Born offer substantial savings for many drivers, running for as little as 3p–7p per mile. However, public rapid chargers can cost between 17p and 20p+ per mile. That's significantly higher than a typical efficient petrol car (12p to 15p per mile), meaning if you can’t charge at home, an EV could cost you more to run.
However, buying an EV outright can sometimes feel risky because battery technology evolves so quickly. And as battery technology improves, older EVs can lose value. So, you might save money on fuel, but you risk losing those savings if the car’s value drops more than expected, by the time you sell.
Leasing an electric car could offer the best of both worlds: you get the low running costs of electric driving, while transferring the depreciation risk to the leasing company. This allows you to drive the latest Tesla Model 3 or Hyundai Tucson plug-in hybrid without worrying about future resale values and to simply upgrade to the newest tech at the end of your term.
Breaking down the cost to lease a car
Leasing, or Personal Contract Hire (PCH), works differently from buying. Instead of paying towards the vehicle’s total ownership, your monthly fee covers depreciation while you drive it.
To determine the cost to lease a car, the leasing provider estimates what the vehicle will be worth at the end of the contract (its residual value). You essentially pay the difference between the car’s initial price, and this predicted future value, spread over your term.
This structure locks in your cost upfront, protecting you from market fluctuations. For example, if a car like the Peugeot 2008 Estate or Volkswagen Tiguan Estate depreciates faster than expected, your monthly payment does not change. The risk remains with the leasing company, not you.
The benefits of leasing a car
1. Fixed monthly costs
The cost of owning a car can be unpredictable. As vehicles get older, maintenance costs tend to rise. Cars can also lose value faster than you might expect. In contrast, your car lease cost is fixed. You usually pay a set monthly fee that covers usage and car tax for the duration of the contract. That means you know exactly what goes out of your account every month for the duration of your car lease.
2. Lower upfront payment
Leasing usually requires a smaller “initial rental payment” than the upfront car purchase deposit. This initial cost is typically three or six times your monthly payment, which can be ideal for budget-conscious drivers. Better yet, some car lease providers offer deals without upfront costs, meaning you don’t need to pay an initial rental deposit – just the standard monthly rate.
3. Maintenance packages
Many contracts offer optional maintenance packages. This usually covers the cost of servicing, tyres and repairs in your monthly payment, removing the shock of unexpected garage bills.
4. Easy access to the latest models
With leasing, you get to drive a brand-new vehicle every two to four years. This means you could be behind the wheel of a car with the latest safety features, entertainment tech and fuel efficiency.
Read more about the pros and cons of leasing a car.
Car ownership vs leasing: Which is right for you?
Choosing between owning and leasing a car depends on your lifestyle and finances. A closer look at each option can help you determine which is the right fit.
A fixed-cost option with car leasing
If you prefer driving a new vehicle every few years, want predictable monthly expenses and prefer to avoid the hassle of resale, car leasing could suit your circumstances.
Plus, with AA Lease,, you can enjoy car tax and free UK delivery as standard, making the process hassle-free.
Search AA lease deals.
Flexibility with car ownership
Owning a vehicle may be your preferred option if you drive a high annual mileage, plan to modify your vehicle or intend to keep the car for the long term (six or more years).
Search AA used cars for sale.
AA Lease is provided by Wessex Fleet Solutions Limited. AA Financial Services Limited introduces you to Wessex Fleet Solutions Limited and is acting as a credit broker and not a lender. AA Financial Services Limited receives a commission from Wessex Fleet Solutions Limited, which can vary based on the lender and vehicle selected. By placing an order to lease a vehicle, you consent to the commission being paid and acknowledge AA Financial Services Limited is not acting impartially.
FAQs
While the exact cost of car ownership depends on the vehicle you choose, The AA’s recent data suggests it’s often higher than drivers expect. When you combine fuel, insurance, tax, car depreciation and more, the total cost of ownership mounts up. That’s why looking beyond the monthly finance payment and assessing through the TCO lens is so important.
Car depreciation represents the value your vehicle loses over time. If you buy a car, this loss is yours to bear when you eventually resell it. If you lease, this risk is absorbed by the leasing provider.
The cost to lease a car is often determined by the vehicle’s expected depreciation over the course of your contract. Essentially, you’re paying for the value the car loses while you drive it. Other key factors that influence your monthly rate include the length of the contract (usually two to four years), your agreed annual mileage and the size of your initial rental payment.
Low-cost car leases can depend on several factors, including the contract length, your annual mileage limit and the vehicle you choose. To find the lowest monthly price, you can adjust your terms, opting for a lower yearly mileage or a longer contract duration, which can often reduce the monthly fee.