There are many options to buy a car. Should you use cash? Should you get financing? Should you get a lease? Should you just get an Uber every time?
Each of these have their pros and cons to them.
Interestingly, leasing a car sounds SO appealing! There seem to be loads of great reasons like:
- Low to no down payment
- Smaller monthly payment
- Get a new car every 2-3 years
- Little to no maintenance because it is a new car
- Never drive a used car again
But are these the best way to buy a car? Would leasing vs financing a car actually cost you more money in the end?
In this article, we are going to look at the difference between leasing and financing a car and the benefits and disadvantages of both.
Lease vs. finance a car: what is the difference?
Before buying a car, you might ask what the difference is between leasing and financing a car. These are two opposite routes for getting a new vehicle.
When you lease a car, you determine a time period to use the car and make payments while you have it. When you finance a car, you get an auto loan in order to make a vehicle purchase.
To summarize, leasing is more like renting a car, and financing refers to getting the money to purchase the car.
Is leasing a car a good idea?
You might want to lease a car because of its attractive lower monthly payment in comparison to the high cost of financing a car.
Although the monthly installments are less, you are left empty-handed when the lease contract ends because you still don’t own the car.
The good thing is that you can easily choose a new car model and switch it every few years without any extravagant car repairs. On the downside, you will have to pay an additional mileage fee assessed by the dealer.
It might strike you if a calamity hits and you go bankrupt, which will leave you nothing in hand—a point to think about. But if you have ample savings and enjoy changing car models, then nothing can stop you from choosing this option.
What is the downside to leasing a car?
This investment is similar to renting an apartment. You pour in a hefty amount of money to live in a nice house on a monthly basis, but when the time ends, your place is handed over to someone else.
You just borrowed it. You do not own it.
Car leasing can draw you into great financial trouble, in which case you will have to return the dealer’s possession, or if you can afford it, you can opt to purchase it instead.
The lease is also inclusive of additional charges like over mileage that can cost you thousands of dollars.
If you are lucky enough, a few dealers might let you off without a lease penalty when you break it off. If you want, you can then even transfer the lease.
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Can I buy my leased car early?
Yes, you can, but you need to take certain factors into consideration before doing so:
- Equity Consideration: Do not wait for an “end of lease buyout” if you wish to keep the vehicle. Take advantage of your gained vehicle value.
- Subjectivity of the Residual Value: Consider the value of the purchases per a predetermined amount in accordance with the end lease term value.
- Lease Agreements: Consider the depreciation factor for the vehicle, which can affect your total lease amount.
- Extra Charges: Consider the finance lease charges along with additional payments at the time of buying the lease.
- Wear and Tear: Possible wear and tear along with excess mileage will cost you extra for its maintenance.
Moreover, you will face an easier process if your lease buyout occurs via a company making navigation easier for you. It can serve as a great deal if you wish to drive your dream car all your life and have enough finances to bear the cost.
How do I get out of a leased car?
A lease may last up to 36 months. However, if you wish then there are two possible ways to get out of a car lease earlier.
The most effective and commonly used method is to call for an early termination, which is returning the vehicle before ending the contract. This may be an expensive option since a termination fee will be charged while collecting the leftover payments too.
You can also opt for a car lease buyout option if you want to own the car exceeding the lease contract terms. This usually occurs during the end of the lease contract where the price is negotiated with the dealer.
In fact, you can even sell it off to someone else to gain a good profit.
Should I lease a car or buy a car with cash?
Choosing a car on lease or on cash is a personal choice based on your budget and life goals. Both leasing and buying cars have their benefits. You will need to decide which one works best for you.
Before making a decision, make sure to evaluate your financial standing while ensuring that the terms and policies you are about to choose are feasible for you.
Below is a list of benefits of a lease vs. finance of a car. All you need to do is evaluate and pick your way.
Benefits of leasing a car
Low monthly payments
The monthly payments will be less than financing a car. Little or no down payment will be required with no added sales tax.
However, over mileage on the car can cause you to pay extra cash to cover its exceeded limit. An additional cost of unrepaired damage or early termination may cost you an arm and a leg too.
Never being “upside-down”
The lease amount is decided in regard to the depreciation time of the model since different cars have different depreciating rates. You only pay for the year the car deprecated.
Few repair expenses
Your manufacturer’s warranty is responsible for any unexpected repairs, which will be taken care of automatically. However, you still need to maintain the model and keep it updated.
Drive a new car more often
If you enjoy diving new cars every now and then, a lease will allow you to experience this without any hassle. You can then enjoy a safe and modern ride.
Don’t have to sell a vehicle
Save yourself the hassle of selling a vehicle when the lease contract ends. Just simply return it without feeling bad for selling it at a low-cost value.
Does not require loan approval
If you don’t have enough credit and your loan is not getting approved, then leave the hassle of paying hefty interest amounts and instead opt for a lease payment. It won’t put you through stress, and the company will simply take back the car if the payment is not made.
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Benefits of financing a car
Now, have a look at the benefits of buying a car and then compare the two accordingly.
Paying less over the long term
Although monthly lease payments are not as expensive as paying bank loans, they can build into a negative equity at the time of a trade or sell.
However, if you own the vehicle, it is a good investment in the long term if you use it for several years and cover the cost. Buying a car is the least expensive way to own a car.
You have the option to sell it
Having complete authority allows you to put the car in for a trade or a good sell at any given time, especially during a financial crisis. This is not the case with a leased car.
No mileage limit
You do not have to worry about the mileage limit. You own the car, and you can drive it as much as you like without keeping a mileage check.
When you lease a car, you can get locked up with a hefty charge on exceeding the mileage limit.
No restrictions on appearance
You can style it as you like. No one will stop you from accessorizing your car or keeping it in any condition that you wish. You are the boss!
Discount the depreciation
A 20% to 40% depreciation is possible in a vehicle’s early years. If you buy a vehicle that is two to three years old, you get an edge by paying the actual amount in regards to its depreciation value.
Lease vs. finance a car summary
Leasing a car is a long-term rental and a great option. You are saved hefty loan payments and get to enjoy the perks of new technology in vehicles every couple of years—just like a dream come true.
Financing a car can prevent you from experiencing the joy of a new car often, but it can provide you a sense of security since you own the car. It can even save you from the crisis of increased interest rates—an achievement I must say!
At the end of the day, you will have to weigh out all of the pros and cons to lease vs. finance a car. Or maybe consult a car dealer before you choose with one of the options.
If you have already decided, then wait no more! Make that purchase or lease and hop into that new vehicle of yours.