Leasing vs. Financing

When it comes to leasing vs. financing a vehicle, the options between the two can sometimes be confusing. If you’re in the market for a new vehicle you’re probably wondering what the difference between the two are. In this blog post we’ll explain exactly what each term means and give recommendations on what we think is the best method for you.

What Is Leasing?

A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset. In this instance, you’re probably reading this blog post because you’re wondering how leasing works within the automotive industry. It’s actually quite simple. If you choose to lease your vehicle, this means that you will have a fixed payment for a certain period of time and at the end of that period, you either return or buy the vehicle.

Generally, leasing offers lower monthly payments than financing, as well as the benefit of owning a new vehicle every two or three years. The catch with leasing is that there are certain terms and conditions you have to follow or you could be charged more money depending on the scenario.

For example – when you lease a vehicle, the lessor usually sets a certain amount of kilometers a year you’re allowed to drive. If for whatever reason you go over the set amount of kilometers, you can be charged more money for the extra kilometers put on the vehicle. If the vehicle undergoes excessive wear and tear within your term, you also may be required to pay a penalty fee to fix the damages.

These are just two of many factors that could be present in your leasing agreement. If you decide to go this route, we highly recommend reviewing the terms and conditions with your lessor and make sure you understand the criteria. Another factor worth noting with leasing is that your car will always be under warranty during your term.

So, should you lease a vehicle? Well, it all depends on your driving habits, your needs, and wants. If you love the idea of having a new car every two or three years and lower monthly payments, then leasing is for you. If you drive frequently and don’t like the idea of paying extra for going over the set kilometers from your leasing agreement, leasing isn’t for you. There are many other factors that are involved with leasing so we advise you consultant your lessor for further information.

What Is Financing?

Financing means asking any financial institution (bank, credit union, finance company) or another person to lend you money that you promise to repay at some point in the future. In other words, if you purchase a vehicle but do not have all the cash for it, the dealer may look for a bank that will finance the money for you.

One difference with financing compared to leasing is that when your payments are finished, you are the full owner of the vehicle and have the freedom to do whatever you want. If you’re looking to finance a vehicle, a financial institution may request a down payment. You can also trade-in another vehicle and use any equity towards your down payment. The amount of money you put down is usually based on the lender’s requirements and your credit score. If you’re interested in learning more about your credit score, check out of previous blog post.

If you decide to finance a vehicle, generally, the payments are a little higher compared to leasing. This is because you’re paying interest on the loan you’re using to pay for your vehicle. However, one benefit of financing a vehicle is that it can hold a future monetary value depending on how well you maintain it throughout the years.

So, should you finance a vehicle? Again, it all depends on your driving habits, needs, and wants. If you don’t mind higher monthly payments and things like unexpected repair costs after your warranty has expired, then financing is for you. If you don’t like the idea of extra repair costs when your warranty expires, then financing is not for you. There are many other factors that can be involved when financing a vehicle so we suggest consulting a finance manager for further information.

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