The calculation, and why nobody does it#
Total cost = deposit + all monthly payments + balloon payment − resale value.
That’s the real price of having the car for the term. It’s the only number that lets you compare a lease against a purchase against a finance deal, because all four options produce completely different monthly figures for completely different things.
Monthly payments can’t be compared. They’re outputs of different structures — one covers depreciation only, one covers the whole car, one covers part and defers the rest. Comparing them is comparing a rent to a mortgage to an instalment plan.
The four options, same car, same term#
£30,000 Audi A3, 15% deposit (£4,500), three years.
Hire purchase. Deposit plus borrowing the rest at around 11%. About £810 a month, roughly £34,000 paid in total, and you own the car. Sell for around £16,000 and the three years cost ~£17,500.
Lease. About £345 a month, far lower because you’re only paying the depreciation, not the car. Hand it back at the end. Three years cost ~£17,000.
PCP. About £453 a month. Then a fork: hand it back and the total is ~£21,000; pay the £15,000 balloon to keep it and the total is ~£36,000.
Buy outright. £30,000 on day one, sell for £16,000. Three years cost ~£14,000.
| Option | Net 3-year cost |
|---|---|
| Buy outright | ~£14,000 |
| Lease | ~£17,000 |
| Hire purchase | ~£17,500 |
| PCP (return it) | ~£21,000 |
| PCP (keep it) | ~£36,000 |
PCP loses both ways, and that’s not accidental#
Look at the fork again. Return the car and you paid about £4,000 more than a straight lease for the same outcome — three years of driving, no car at the end. Keep the car and you paid about £2,000 more than hire purchase for the same outcome — three years of driving and ownership.
PCP is worse than the better option in each branch. There is no path where it wins.
It’s also the most popular option and the one dealerships push hardest, because it’s the most profitable for them. The monthly payment sits attractively between the lease and the hire purchase, and the structure produces a customer who arrives back on the forecourt in three years facing a large balloon payment — at which point trading in for a new PCP is the path of least resistance. That’s the business model: recurring revenue, not a sale.
Deposits and “dealer contributions” get adjusted to make the monthly number look good. None of that changes the total.
Buying outright wins on cost and loses on something else#
£14,000 is clearly the cheapest, and it’s the option with the real hidden cost — opportunity cost.
That £30,000 isn’t free to sit in a car. Invested in something like an S&P 500 tracker over the same three years, it could plausibly generate returns that exceed the extra cost of financing. Whether it does depends entirely on the market over that specific window, which nobody knows in advance.
That’s the honest comparison to run, and it’s the only genuine argument for financing a car you could pay for. Compare the financing premium (£17,500 − £14,000 = £3,500 over three years) against what £30,000 might reasonably earn. If your alternative use of the capital is a savings account, buying outright wins comfortably. If it’s a business you’re confident in, the maths shifts.
The factors that aren’t in the table#
Numbers don’t settle it alone.
Ownership means no monthly payment once it’s paid, unlimited miles, modifications allowed, and full control. It also means maintenance costs land on you as the car ages, which is exactly when they rise.
Leasing and PCP mean a newer car, lower monthly outgoings, and trading in before the warranty expires so maintenance is rarely your problem. In exchange: mileage caps with per-mile penalties, an obligation to keep the car pristine, and restrictions on modifications.
If you keep cars for a decade, ownership wins on every dimension. If you want a new car every three years, leasing is the honest way to do that — and PCP is the expensive way to do the same thing.
The option that beats all four#
Buy a two to three year old car.
Someone else already absorbed the steepest part of the depreciation curve — the portion that makes the “sell for £16,000” line in every calculation above so punishing. The car is recent enough to be reliable and under warranty in many cases, and the total cost is dramatically lower than any new-car route.
This isn’t in the table because it changes the question. Every option above is a way of paying for a new £30,000 car. The pre-owned route asks whether you needed a new £30,000 car.
Summary — and what to do about it#
One calculation, done before you visit anyone.
- Compute total cost for every option. Deposit + payments + balloon − resale. It’s the only comparable figure.
- Refuse to compare monthly payments. They describe different products and they’re designed to be compared.
- Treat PCP as disqualified unless you can show otherwise. It loses to leasing if you return the car and to hire purchase if you keep it.
- If you’ll return the car, lease it. Same outcome, roughly £4,000 cheaper over three years.
- If you’ll keep it, buy outright or use hire purchase — and weigh the financing premium against what the capital would otherwise earn.
- Price a two-to-three-year-old version first. The first owner paid for the depreciation you’d otherwise absorb.
The dealership controls the monthly payment. You control the total, and only one of those is the price.
Sources & further reading#
- Kapio Analytics, S&P 500 historical returns since 1926 — the return assumption behind the opportunity-cost comparison.
- Edmunds Q1 2026 insights report — negative equity at trade-in and the effect of long financing terms.
- Cox Automotive / Kelley Blue Book June 2026 transaction price report — current new-vehicle prices, payments and loan rates.
