Leasing, Hire Purchase or Cash: the Five-Year Total, Not the Monthly Payment

The comparison people make is monthly payment against monthly payment

Ask three people how they chose between leasing and buying and all three will quote a monthly figure. That is not a stupid instinct — the monthly payment is the constraint that actually binds a household budget. It is simply not a price. A monthly payment is a price divided by an unstated number of months, minus an unstated amount of value handed back at the end, and comparing two of them without knowing either of those unstated terms is comparing nothing at all. The advertisement knows this. That is why the payment is in the largest type on the page and the term, the mileage cap and the option price are in the smallest.

The comparison that decides the question has three terms and one of them does almost all the work. Over any period, the cost of having a car is depreciation, plus the cost of the money, plus running costs. Running costs are close to identical across the three routes for the same car and the same mileage, so they cancel and can be left out of a like-for-like comparison. The cost of the money differs, and that is what the interest rate measures. But depreciation — what the car loses between the day you take it and the day you stop having it — is the largest single line in almost every case, and every one of the three routes is a different way of paying for the same depreciation. Once you see that, the whole comparison collapses into two questions: who bears the depreciation, and what interest is charged on the part of it that is deferred.

The same car, three routes, five years, one interest rate

Here are the assumptions, stated out loud because the answer moves with them. A car costing 30,000 euros on the road, kept five years, worth 12,000 euros at the end — a 60 % loss, which is neither a prediction nor a promise but a round number you should replace with the guaranteed residual printed on your own lease quote. The financing rate is 7.50 %, which is what euro-area banks actually charged on new loans to households for consumption in June 2026, according to the European Central Bank's interest-rate statistics published on 31 July 2026. The cash buyer's money is assumed to earn the euro-area average on a household deposit with an agreed maturity of up to one year, 2.03 % in the same release, taxed at the French flat rate of 31.4 % applying in 2026, which nets 1.393 %.

The arithmetic then writes itself. Hire purchase over sixty months at 7.50 % costs 601.14 euros a month, 36,068 euros in total, of which 6,068 euros is interest; sell the car for 12,000 euros and the five years cost 24,068 euros. A lease over the same sixty months at the same rate, amortising down to a 12,000-euro residual, costs 435.68 euros a month and 26,141 euros in total, and you own nothing. Cash costs the 18,000 euros the car actually lost, plus 2,148 euros of interest the money would have earned had it stayed on deposit, so 20,148 euros. Ranked by monthly payment: lease, then credit, then cash. Ranked by what the five years cost: cash, then credit, then lease. The two rankings are exact opposites, and nothing about that is a coincidence.

Why the lease payment is lower, in one line

A hire-purchase instalment amortises the whole price to zero. A lease instalment amortises the price down to the residual value and stops there — the residual is never repaid during the term, so you pay interest on it every single month and never reduce it. That is the entire mechanism. It also means the size of the gap is not a matter of opinion: at 7.50 % over sixty months, deferring a residual instead of amortising it costs 17.27 % of that residual. On 12,000 euros that is 2,073 euros; on 8,000 euros it is 1,382 euros; on 16,000 euros it is 2,764 euros. Change the rate and the factor changes with it — 7.19 % at a 3 % rate, 11.77 % at 5 %, 20.45 % at 9 % — but the shape does not.

The cleanest way to see it is to compare identical end states. Lease the car and then exercise the purchase option, and you have paid 26,141 euros of instalments plus a 12,000-euro option: 38,141 euros, and you own the car. Buy the same car on credit at the same rate and you have paid 36,068 euros, and you own the car. Same car, same day, same lender's rate, 2,073 euros apart — which is, to the euro, the interest on the deferred residual. Anyone who tells you a lease with an option is a way to try before you buy should be asked what that trial costs, because that is the number.

What a lease is actually selling, and what the law calls it

The honest description of a lease is not cheap access to a car. It is an insurance contract against the residual value, sold alongside the financing. The lessor names a figure the car will be worth in five years, and if the market disagrees the lessor eats the difference — that is a real service and it has a real price, and the 17.27 % factor above is what it costs at a 7.50 % rate. Where the deal turns against the customer is that the same contract also sells you the risks it can price better than you: the mileage cap, charged per excess kilometre at a rate written into the contract, and the return condition, assessed by the lessor's own inspector. Neither line appears in a payment comparison, and both are where a lease that looked competitive stops being one.

The legal frame is worth knowing because it decides what the seller must disclose. In France, Article L312-2 of the code de la consommation, in force since 1 July 2016, states plainly that lease-purchase and lease with a purchase option are treated as credit operations — so a lease with an option carries the full consumer-credit machinery, including an APR you can compare against a loan. A long-term rental with no option is not credit and carries no APR, which is precisely why the total cost of one is so much harder to check. Across the EU this is about to become more uniform: Directive (EU) 2023/2225, the second Consumer Credit Directive, had to be transposed by 20 November 2025 and applies from 20 November 2026, and it excludes from its scope only hiring or leasing agreements in which neither an obligation nor an option to purchase is laid down. The predecessor directive excluded any lease without an obligation to buy. Option leases are being pulled into the disclosure regime, and the practical consequence is that from late 2026 you should expect a comparable rate on the quote.

When leasing genuinely wins

The verdict above holds at one interest rate for all three routes, and that is exactly the assumption a manufacturer's finance arm exists to break. Captive lenders subsidise leases because a lease guarantees them the car back on a known date, which feeds the approved-used channel. Work out the break-even and the point becomes concrete: against credit at 7.50 %, the lease in our example draws level at 5.63 %, so a lease has to be roughly 1.9 points cheaper than the loan on offer before it starts winning. That is not a rare offer — at a 3 % promotional rate the same lease totals 21,206 euros over five years against 24,068 euros for the credit route, a 2,862-euro win. The right question at the desk is therefore never leasing or buying, it is which rate am I being offered on each, and the answer is on the quote.

Two other situations reverse it honestly. The first is a guaranteed residual set above what the car will really fetch, which happens most often in segments where nobody knows what used values will do — electric cars in the middle of a technology shift being the obvious case. If the lessor guarantees 12,000 euros and the car is worth 9,000 euros at handback, the lessor has absorbed 3,000 euros of loss that a buyer would have taken personally, and that transfer can be worth more than the 2,073-euro interest on the residual. The second is business use, where the calculation changes shape rather than size: recoverable VAT, deductibility caps, and the way company cars are taxed as a benefit in kind mean the private-buyer arithmetic simply does not transfer. Anyone comparing a lease for a company should redo the whole sum inside their own tax rules.

Three numbers to pull off your own quote

You do not need a spreadsheet to redo this for your own car; you need three figures that are all printed on the paperwork. First, the residual — the guaranteed buy-back or option price at the end. Multiply it by the factor for your rate and term, and you have the standing cost of the lease structure itself before anything else: 17.27 % at 7.50 % over sixty months. Second, the rate on each product, stated as an annual percentage rate so that the two are comparable — and if the long-term rental you are being shown does not state one, treat that as information rather than an oversight. Third, the mileage cap and the excess charge, because an allowance you exceed by a few thousand kilometres a year is a cost you have already agreed to without noticing.

One last correction to a comparison that is made far too often. Cash is not automatically the winner because it has no interest line. It has one, it is just invisible: the money spent on the car stops earning, and at the euro-area average deposit rate net of the French flat tax in 2026 that comes to 2,148 euros over five years on 30,000 euros. If your money would have earned more than that — repaying a more expensive debt, for instance — the cash route gets worse fast, and there is a rate at which borrowing to buy beats paying outright. Below the lending rate you are being offered, cash wins; above it, credit does. That comparison is the one worth making, and it needs the interest rate on both sides, not the payment on one.

Frequently asked questions

If the lease is more expensive, why is its monthly payment lower?

Because it repays less. A credit instalment brings the balance from 30,000 euros to zero over sixty months; a lease instalment brings it from 30,000 euros to the residual and stops. In the example that is 12,000 euros never repaid, so the payment is lower by 165.46 euros a month — but you pay interest on that 12,000 euros for the whole term and still owe it at the end, either by handing the car back or by writing a cheque for the option. Multiply out and the lease route pays 9,927 euros less in instalments and then owes 12,000 euros, which is 2,073 euros worse off for the same car.

Is exercising the purchase option at the end ever a good deal?

Judged at the moment you decide, yes, sometimes: if the car is worth more on the open market than the option price, exercising and keeping or reselling it is straightforwardly profitable. Judged as a plan made at signature, no — you would have reached the same place for 2,073 euros less by buying on credit at the same rate. The two verdicts are not in conflict. The option is a free choice you hold at the end, and free choices are worth having; you simply paid for it in the instalments, and the price is the interest on the residual.

Does a long-term rental with no purchase option change the answer?

It changes what you are buying and what you can check. With no option there is no purchase to compare against, so the honest comparison is against the total cost of owning the same car over the same period — which is what this article computed. It also usually bundles services a buyer pays separately: maintenance, tyres, sometimes insurance and road tax. Strip those out before comparing, or add the equivalent cost to the ownership routes. The practical warning is disclosure: a rental with no option is not a credit agreement under the French rule of Article L312-2 and falls outside the scope of the 2023 EU consumer-credit directive, so no comparable annual rate has to be printed and you have to reconstruct it yourself from the payments and the price of the car.

What if I keep the car ten years instead of five?

Then ownership wins by more, and it is not close. Depreciation is front-loaded: the years that cost the most are the first ones, and the owner who keeps going past the loan's end is buying the cheap years with no payment at all. A lease cannot reach them by construction, because the contract ends and a new one starts at a new car's depreciation curve. This is the single largest reason ownership beats repeated leasing over a long horizon, and it is invisible in any comparison that only looks at one contract term. The counterweight is that older cars cost more to maintain and are worth less when something big fails, so the crossover is not infinitely far out — but at ten years it has long since happened.

Does the mileage cap really matter that much?

It is the line most likely to turn a competitive quote into an expensive one, because it is charged after the fact on a number you cannot revise. The arithmetic is trivial and worth doing before signing: multiply your realistic annual distance minus the contractual allowance by the excess rate in the contract, then by the number of years. An overrun of five thousand kilometres a year at ten cents a kilometre is five hundred euros a year, which on the example above is more than a quarter of the entire 2,073-euro gap between leasing and buying. Take your own last three years of odometer readings rather than an estimate; people underestimate their own mileage systematically, and the contract is written by someone who knows that.