Trying to choose between leasing and buying (also known as financing) a car can be a tough decision to make. Both options have pros and cons, and determining which is the better option for you can be made easier by doing a simple comparison.
Checking out a free dealer price report from CarCostCanada can also help make the decision easier, as the report outlines what rates you can get on the car you want for both leasing and financing. You can also find some great new car deals in Canada on the reports, as they highlight both advertising and unadvertised incentives. Keep reading while we break down some things to consider when trying to decide between leasing and financing a car.
Leasing
Ownership: When you opt for leasing, you don’t actually own the car. You get to use it until the lease is up, and then you have to return it. Most leasing agreements allow you to buy the car at the end of the lease if you decide you want to keep it.
Up-front costs: In terms of leasing, up-front costs commonly include the first month’s payment. They often, depending on the lease agreement, also include a refundable security deposit, an acquisition fee, as well as other tax and registration fees.
Monthly Payments: Monthly lease payments are more often than not a lot lower than financing payments due to the fact that you’re paying for the vehicle’s depreciation during the lease term.
Early Termination: If you want to end you car’s lease early, you will be charged a fee to do so. Sometimes a dealer may decide to purchase the car from the leasing company as a trade-in, which would mean you wouldn’t have to pay the fee, but it’s not often that this happens.
Vehicle Return: Once the lease has ended, returning the vehicle is very easy. You bring the vehicle back to the dealer, pay any end-of-lease costs, and walk leave. If you wish, most lease agreements give you the option to buy the car after the lease has ended.
Future Value: When leasing, the future value of the car won’t affect you financially, but this also means that you won’t have any equity in the vehicle.
Mileage: A majority of lease agreements will feature a limit on the number of miles you can drive. Usually this is between 12,000 to 15,000 per year, though you can negotiate a higher mileage limit if you believe you’ll be driving more than that. If you go over the limit you will have to pay a fee for exceeding your limits.
Excessive Wear and Tear: If any damage occurs to the vehicle while under lease, you’ll be held responsible and will have to pay extra for exceeding what is considered normal wear and tear. What is considered normal wear and tear will be discussed with you when you first sign the lease.
End of Term: Most leases last 1two to three years, and once it is up you have the option to finance the purchase of the car, or lease or buy a new car.
Customizing: Usually you are not able to customize the vehicle while under lease, because you have to return it in a condition that the dealership can resell. Any custom parts or modifications that have been added will be removed. If there is any residual damage from removing modifications, you’ll have to pay to have it fixed or you’ll need to file an insurance claim and pay a deductible.
Financing
Ownership: One of the perks with financing is that once the loan is paid off you own the vehicle and can keep it as long as you want.
Up-Front Costs: In terms of financing, up-front costs include the either cash price (if you are buying it outright) or a down payment, taxes, registration, and other fees.
Monthly Payments: Monthly loan payments are typically more expensive than lease payments because you’re paying off the entire purchase price of the vehicle, as well as interest, taxes and other fees.
Early Termination: If you decide to get rid of your car before the loan is paid off, you can usually either sell or trade in your vehicle. Any money from the sale can be used to pay off the existing loan balance.
Vehicle Return: When you decide it’s time for a new car, you’ll have to deal with selling or trading in your car on your own.
Future Value: The vehicle is going to depreciate, but its cash value is yours.
Mileage: Unlike leasing, when you finance your vehicle you’re able to drive as many miles as you want. You should keep in mind that the higher the mileage the lower the vehicle’s trade-in or resale value will become.
Excessive Wear and Tear: While you don’t have to worry about wear and tear, you should keep in mind that it lowers the vehicle’s trade-in or resale value when you’re looking to get a new car.
End of Term: Once you reach the end of the loan, you don’t have to make any further payments and you have built equity to assist in paying for your next vehicle.
Customizing: The vehicle is yours, so you can customize as much as you please.