Key Takeaways:
- Leasing involves renting a vehicle for a set time
- You’re required to make monthly payments during the leasing term
- Financing is where you take a loan out to buy the vehicle
- You must pay the loan back in monthly installments
When scouring the market to buy a car, you must first decide whether to lease or finance it. Both options have sweets and sours, and it can be challenging to determine which is suitable for your new car.
This blog post will discuss the leasing vs. financing debate to decide which option is best for you.
What Is Leasing?
Suppose you’re unfamiliar with the term or new to the car-buying process. In that case, leasing is when you essentially rent a vehicle for a predetermined time. The lease agreement’s length is usually between 2 to 4 years. You make monthly payments during the term of the lease, and at the end of the lease, you have the option to buy or return the car.
What Is Financing?
Financing is when you take out a loan to pay for a vehicle. The loan is paid back in installments, like leasing. The main difference is that you own the car outright at the end of the term.
Financing has been the more popular option in recent years, as it offers more flexibility and freedom than leasing. You’re not restricted to a certain number of miles, so you can drive as much or as little as you want.
Why Should You Lease a Car?
No. 1: Down Payment
You don’t have to put any money down in most cases. You usually have to make a down payment when you finance a car. With leasing, you can purchase a new ride without having to come up with significant cash upfront.
Suppose your lease agreement does include a down payment. In that case, it’s a security deposit and usually much lower than what you’d pay to finance a new ride.
No. 2: Monthly Payment
Again, these two forms of car ownership differ regarding monthly payments. This is because you only pay for the car’s depreciation, plus interest and fees, while driving it. You’re not paying off the entire vehicle value as you would with a new loan.
That said, your monthly payments could be higher than a new car loan, depending on the interest rate, loan length, and other factors.
Why Shouldn’t You Lease a Car?
There are some reasons why it might not be the best option.
No. 1: Termination Trouble
If you decide that you want to get out of your lease early, you could be in for an unpleasant surprise. Most leases have precise terms and conditions about how and when to terminate your contract. If you don’t follow those, you can expect some severe penalties.
Even if you do everything right, getting out of a lease early can be difficult. You’ll likely have to find someone willing to take over your payments, and that can be tough if you’re not in a central metropolitan area.
No. 2: Wear and Tear
When you lease a car, you’re essentially borrowing it from the dealership for a set period. That means you’re answerable for its condition. If there’s any damage when you turn in the keys, you could be on the hook for some hefty repair bills.
And even if there’s no significant damage, normal wear and tear can result in fees. So, if you expect to put many miles on your new ride, leasing might not be the best option.
Why Should You Finance a Car?
Let’s look at the advantages for those looking to buy a car through financing.
No. 1: Easy Buy and Sell
Unlike a lease, when you finance your car, you have the option to sell it whenever you want. That can be a significant advantage if your circumstances change and you need to sell.
No. 2: Customizing Options
When you finance, you can do whatever you want to your new ride. That means you can add those new rims, paint it a new color or install a killer sound system without worrying about penalties.
Leasing companies don’t usually allow modifications to leased vehicles. So, financing is the way to go if you prefer a personal touch to your new car.
Why Shouldn’t You Finance a Car?
Now that we’ve covered the perks let’s consider the drawbacks.
No. 1: Vehicle Return
The biggest downside to financing your car is what happens when you want to get rid of it. If you decide to sell or trade in your vehicle before the loan is up, you’ll likely have to pay a “vehicle return penalty.” This fee can add a couple of hundred dollars – or more – to your bill.
On the other hand, leasing allows you to return the vehicle with no penalty at the end of your lease term. Of course, this isn’t an issue if you want to keep your new car for the long haul.
Auto Insurance offers some helpful insights if you’d like to learn how to return your financed car without getting penalized.
No. 2: Depreciation
When you finance a new car, its value depreciates the second you drive it off the lot. Brand-new vehicles can lose up to 20{0e441d6ab9c1e194b10d298e630061aaec753b129dc4c400460f540cfce3613c} of their value in the first year alone.
On the other hand, leased vehicles don’t suffer from depreciation because you’re never actually owning the car. Instead, you’re paying to use it for a set period. You return the vehicle to the dealership at the end of your lease term with no further obligation.
Wrapping Up
We hope this short guide from the experts at Vann York Toyota helped you learn the critical differences between leasing and financing a new car. If you’re looking to buy a car in High Point, NC, and are interested in the latest trends, check out our blog post on car shopping online.
And if you’d like to know more about buying vs. leasing a car, check out our finance department today!
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