Enter the car’s price, your deposit and the term, then the interest rate and fees for each option. The table compares what you pay each month, what you pay in total, and, because with a loan or hire purchase you keep the car, its likely value at the end. The net cost row is the fairest comparison.
Used as the lease residual, and as what the car is worth to you at the end of a loan or hire purchase. New cars are typically worth 45–60% of their price after 3 years.
| Loan | Hire purchase | Lease |
|---|
Car loan: you borrow the price minus your deposit from a bank or credit union, own the car from day one, and repay it in equal monthly instalments. Monthly payment = P × r ÷ (1 − (1 + r)−n), with r the monthly rate and n the number of months.
Hire purchase (HP): the dealer’s finance company owns the car until the last payment. The maths is the same as a loan, but rates are often higher and fees are added to the amount financed, plus a small option-to-purchase fee at the end. (An HP with a large final “balloon” payment is a PCP; use the Hire Purchase calculator for that.)
Lease: you pay for the car’s expected drop in value plus interest, then hand it back. Monthly payment = (price − deposit − residual) ÷ n + (price − deposit + residual) × money factor, where money factor = APR ÷ 2,400. Payments are lower because you never pay off the residual, but you own nothing at the end.
The net cost is everything you paid minus what the car is worth at the end (zero for a lease). With the example figures, the loan costs least overall (about 23,300), the lease has by far the lowest monthly payment (539 vs 1,111), and hire purchase ends up the most expensive because of its higher rate and fees.
Over the same period, buying with a low-rate loan usually costs less overall because you keep a car that still has value. Leasing gives lower monthly payments and a new car every few years, but you pay for the depreciation plus interest and own nothing at the end.
With a loan you own the car immediately and owe the lender money. With hire purchase the finance company owns the car until your last payment, so it can take the car back more easily if you fall behind. HP is arranged through the dealer and often has a higher rate and extra fees.
The car’s expected value at the end of the term, as a percentage of its price. On a lease it’s the part you don’t pay off. A higher residual means lower lease payments; for loans and HP it’s what the car should be worth to sell or trade in.
The way leases often express interest. Multiply it by 2,400 to get the approximate APR: a money factor of 0.003 is about 7.2% APR.
For a loan or HP, a bigger deposit reduces interest. For a lease it lowers the monthly payment but not the total much, and if the car is written off early you may not get that deposit back, so many people keep lease deposits small.
