Car Financing vs Leasing

While entering the market to purchase a car, prospective buyers are faced with two options. They can go ahead and finance a vehicle or lease it depending on their expectations. It’s best to understand both variations and make an educated decision.

This read will pinpoint the intricacies of both car financing and leasing.

Car Finance

Car financing involves the use of different financial instruments (i.e. Loans) to acquire a specific used/new vehicle at a pre-determined price. The purchase can be made with a down payment or without depending on the individual’s credit score. The buyer has to go through a third party lender (such as a bank) to acquire the funds for this purchase. The entire payment is completed by the third party lender and the remaining agreement is left between lender and buyer. In this case, the buyer becomes the sole owner of this vehicle and has no link with the dealership beyond service repairs (if agreed upon).

Pros

1) Complete Ownership

Financing ensures you have complete ownership of the vehicle and it is under your name as soon as it’s sold.

2) Can Modify Vehicle (tyres/Rims/Sound System)

You are allowed to change it as you like without any concerns. This is your vehicle and you can do with it as you please as long as it’s legal.

Cons

1) Depreciating Asset

The vehicle is a depreciating asset as soon as it is driven off of the lot. This vehicle is in your possession and has to be sold in order to recoup some amount of money.

2) Larger Payments

The payments are larger since the entire amount is being financed and the third party lender will be rigid about the payments.

Car Lease

Car leasing involves a pre-determined period in which the individual gains a chance to drive the vehicle for a certain amount of kilometres (i.e. 25,000 km/year). To earn this right, the dealer, and individual sign an agreement at a set rate (i.e. Monthly payments over 24 months). The details can vary but as soon as the lease is over, the vehicle has to be handed back to the dealer. Please note, the dealer is the owner of this vehicle and therefore will offer service repair in most cases.

Pros

1) Can Affordably Lease Expensive and/or New Vehicles

If the goal is to always have the latest and greatest vehicle then there is nothing better than leasing since it’s affordable. The payments are low even if the vehicle is expensive.

2) Smaller Monthly Payments

The lease will often have a smaller payment since the ownership is still with the dealer. It is similar to a rental and is given to the individual for a pre-determined period.

Cons

1) No Ownership

The biggest concern for individuals leasing a car has to do with ownership. Since you are not the owner, the vehicle cannot be sold, modified, and/or overused as written in the agreement. This can be restrictive for some people that are passionate drivers or fall in love with a vehicle.

Final Thoughts

It’s important to consider the advantages and disadvantages of both options before coming to a final decision. Each person will have their opinion on what is right and what is wrong. It’s best to weigh both and determine which one works out best based on your financial standing.