What’s The Difference Between Leasing and Financing?
When it comes to buying a new car, you have two primary options: leasing or financing. In short, leasing is a semi-permanent renting option where financing is a loan that allows you ownership of the vehicle at the end of the loan.
Lets shed some light on the key differences between leasing and financing a vehicle, so you can make an informed decision for your next vehicle.
Leasing a Vehicle
Leasing a car is like renting it for an extended period of time. When you lease a vehicle, you make monthly payments for the right to use the car, but you don't ever actually own it. Leases typically last for 2-3 years, after which you can return the car to the dealership or buy it outright.
Advantages of Leasing:
Lower Monthly Payments: Because you're only paying for the car's depreciation over the lease term, your monthly payments are typically lower than they would be if you were financing the vehicle.
Regularly Upgraded Cars: Since leases are typically short-term, you can upgrade to a new car every few years and enjoy the latest technology and safety features.
No Hassle of Selling: When the lease is up, you can return the car to the dealership and walk away. You don't have to worry about selling the car or negotiating a trade-in value.
Disadvantages of Leasing:
Mileage Limits: Most leases come with mileage limits, so if you drive more than the allotted amount, you'll be charged extra fees.
No Equity: Since you don't own the car, you won't build any equity over the course of the lease.
Potentially Higher Total Cost: While your monthly payments may be lower, the total cost of leasing a car over multiple leases may be higher than financing and owning a car outright.
Leasing was trending up during the COVID-19 pandemic as vehicle prices rose and became harder to afford. However, financing is now making a comeback as vehicle supply is increasing and affordability is returning.
Financing a Vehicle
When you finance a car, you are taking out a loan to pay for it, and you own the vehicle once the loan is paid off. Your monthly payments go towards paying off the principal and interest on the loan, and you'll usually have the option to sell or trade in the car at any time.
Advantages of Financing:
Ownership and Equity: Once you pay off the loan, you own the car outright, and you can sell or trade it in at any time. You can also build equity in the vehicle over time.
No Mileage Limits: Since you own the car, you can drive it as much as you want without any mileage limits or extra fees.
Potentially Lower Total Cost: While your monthly payments may be higher, the total cost of financing a car over multiple years may be lower than leasing multiple cars.
Downsides of Financing:
Higher Monthly Payments: Since you're paying for the full purchase price of the car, your monthly payments will typically be higher than they would be for a lease.
Depreciation: Cars depreciate in value over time, so the value of your car will decrease over the course of the loan.
Longer-Term Commitment: Financing a car typically requires a longer-term commitment than leasing, since you're paying off the full purchase price of the vehicle.
Which Option is Right for You?
The decision to lease or finance a car will depend on your personal preferences, goals and financial situation. If you prioritize lower monthly payments and regularly upgrading vehicles, leasing may be the best option for you. On the other hand, if you value ownership, the ability to retain equity, and don't mind higher monthly payments, financing may be the better choice. Ultimately, the decision you make should align with your long-term financial and practical goals. Be sure to also consider any incentives for each option and compare interest rates.
If you’re more drawn to the idea of financing, be sure to check out Carbeeza and learn what your personalized financing structure would be on any vehicle in our inventory, from loads of local dealers! Stay informed in your next auto buying journey and be ahead of the 8-ball when you get to the dealership!
