What’s the difference between car leasing and subscriptions?

Looking for a new car, but not sure about committing to actually buying and owning one? It makes sense - our attitude to owning stuff has changed a lot over the last few years. Millions of us have ditched the shelves full of dusty CDs and DVDs in favour of streaming services like Spotify and Netflix, so it’s a no-brainer that the same philosophy would apply to cars too.

If you’re in the market for a new set of wheels but not sold on the idea of car ownership, then there’s a couple of options that might suit you. Car leasing is the conventional way to drive a new car without the responsibility of actually owning it, but there’s a new kid on the block that offers even more flexibility - car subscriptions. Intrigued? Let’s take a closer look.

What is car leasing?

Leasing is when you pay an upfront deposit, then make monthly payments to use the car for an agreed period of time, usually between two to five years. At the end of the term, you give the car back to the leasing company - unlike personal contract purchase (PCP) or hire purchase (HP) agreements, there isn’t usually an option to own the car.

Lease cars tend to be brand new, and you’ll need to agree to a maximum number of miles you’ll drive each year. Road tax may be included in your monthly payments, and you might have the option to include a servicing and maintenance package with your lease, for an extra fee. You’ll have to sort out (and pay for) your own insurance, though. 

What is a car subscription?

Car subscriptions schemes go by a few different names, such as flexible lease or rental; long-term rental, long-term hire or short-term leasing. The way it works is pretty simple: you use a car for as long as you like, from one month to a few years, for a monthly fee. You can swap the car for another one whenever you like (subject to conditions).

You usually pay a small fee at the beginning of the subscription - this is often a refundable deposit of around £250, but may be higher for more expensive or luxury cars. Unlike conventional leasing, the extra costs of running the car - road tax, insurance, servicing - are typically included in your monthly payment. All you have to pay for is fuel.

What are the key differences between leasing and subscription?

Car leasing and car subscriptions are similar, in the sense that you pay a monthly fee to use a car which you don’t own. But, there are some important differences:

The contract

When you lease a car, you sign up for a contract of three, four, or sometimes five years. A subscription is more flexible, and you can choose a shorter term, or go for a rolling contract, so you’re not locked in for a specific amount of time. You can change the car or end the contract at any time, subject to conditions.

The upfront cost

The initial payment on a lease is higher, because it’s usually the equivalent of several months’ payments (although you do have some choice over this). For a subscription, you either pay a small fee to sign up, or a fully refundable damage deposit. The standard deposit amount is £250, but it can vary, and it’ll be higher for higher-end or luxury cars.

The monthly cost

Monthly payment costs can vary depending on several things, but generally speaking, the monthly payment for a car subscription is usually higher than a lease.

The flexibility

Whilst it’s possible to end a car lease agreement early, it’s often  expensive, and it’s not an easy process. Car subscriptions are designed to be flexible, so if you change your mind about the car or want to try something different, you can swap or end the contract at any time - just check the small print to see what conditions might apply.

What’s included in your payments

The monthly payment on a car lease usually includes use of the car, up to a maximum mileage limit, as well as road tax. You can choose to include car servicing and maintenance if you like, but this will mean a higher monthly payment. With a car subscription, all this is already included in your monthly payment, and many providers also include your insurance - so the only extra cost you have to cover is the fuel.

Costs and commitments: leasing vs subscription

If you’re weighing up a car lease against a subscription, one of the biggest things to consider is how much each option is likely to cost. 

Costs

Upfront payment

The initial payment will likely be higher on a lease than a subscription, but you have some choice over this, and a higher initial payment typically means lower monthly payments. On the other hand, car subscription deals tend to have a smaller fee to sign up, or a fully refundable damage deposit - similar to what you’d pay to rent a house or a flat. The deposit is usually in the region of £250, but you’ll be looking at paying more if you’re after a slightly swankier vehicle.

Monthly payments

You can expect the monthly payments on a car lease to be a bit lower than a subscription, because you’re committed for a specific amount of time. Whilst subscriptions are more flexible, because you can change your mind at any point, you’ll likely find that you have to pay a bit more for the privilege.

Additional costs

A lease is more likely to come with additional costs attached. Some deals include more than others, but generally speaking, you’ll usually have to sort out your own insurance, and potentially road tax and servicing. Subscription deals tend to include all of these in the monthly payment - but always check the small print to see what is and isn’t included.

The other important question to ask yourself is how much of a commitment do you want? We’ve established that subscriptions are more flexible when it comes to the length of the contract, but there are some other factors to think about too.

Commitments

Mileage limits

Car leases and subscriptions both come with mileage limits - typically between 800 - 1,000 miles per month - and if you go over these, you’ll have to pay a fee. If you think you’re likely to drive further than the standard limits each month, it’s a good idea to opt for a higher limit upfront - it’ll cost a bit more, but less than an excess mileage charge.

Car maintenance

With both leases and subscriptions, you’ll have to make sure the car is kept in good condition. When you hand the car back, you’ll be charged a fee if there’s any damage to the car, beyond the expected wear and tear.

Changing your mind

If you want to end a car lease agreement early - maybe because your circumstances have changed and the car doesn’t suit you anymore - it can be done but it’s not easy, or cheap. In contrast, car subscriptions are all about the flexibility to change your mind. If you want to swap to another car, or end your rolling contract, you can - just check your paperwork to see what conditions might apply.

Which option is right for you?

Once you’ve weighed up the difference in cost, it really comes down to how much flexibility you want.

If your circumstances and your plans are pretty solid, and it’s unlikely that things are going to change any time soon, you may be better off with a lease. This could save you a bit of money by making a firmer commitment, but will cost you more if your situation changes.

If you’re not as certain about how your situation might change, or if you fancy the freedom of being able to change your car whenever it suits you, then a subscription might suit you better. For instance, lots of people who are curious about switching from petrol to electric cars are using car subscriptions, so they can try it out before committing for the long haul. It’s the definition of ‘try before you buy’. 

What other options are available?

If you’re definitely not sold on the idea of owning a car, you could also look into Personal Contract Purchase (PCP) finance. This is when you pay a deposit, then make monthly repayments for an agreed term - usually between two and four years. Your repayments don’t cover the full cost of the car, because they cover the car’s depreciation, plus interest, so at the end of the term you can choose to give the car back and swap it for another one. Or, if you’ve fallen in love with your car and want to go the distance, you have the option to make a lump sum payment (called a ‘balloon payment’) to own the car.

It’s also worth considering Hire Purchase (HP) finance. You pay a deposit, then make monthly repayments for a term of two to five years, to cover the cost of the car. Once you’ve made your final payment at the end of the term and paid a small ‘option to purchase’ fee, you own the car. This can be an affordable way to drive a new car, but if you’re not keen on owning your car, or if you prefer to change your ride fairly regularly, it may not be right for you.