Difference Between Leasing and Financing a Car
Owning the Vehicle
When leasing a car, you never own the vehicle and you must return it to the lot at the end of the term. But when you finance a car, the lender holds a lien against it and you make payments that lead to full and outright ownership of the car creating a valuable asset. This is the main difference between leasing and financing. You have the option of buying the car at the end of the lease term, however, it is more costly than if you were to have financed the car from the beginning.
When you finance a car, it becomes yours to keep. This means you can make changes to it and customize it how you want. This will affect the resale value, but other than that, you are free to make these changes. However, when leasing a car, you will have to pay for wear and tear damage if it is excessive or not deemed acceptable by the lessor.
Extra Costs
Lease payments are cheaper than finance payments most of the time. The depreciation of the car is covered through lease payments. When you return the car to the lot at the end of the lease term, you have paid the dealer the amount they have lost. This is why dealers are strict on mileage limits and any damage to the car. If you exceed the expected depreciation of the car, you owe the lessor the cost of those fees as well. With leases, you make payments that are equivalent to rental payments because you are essentially renting the vehicle.
If you finance a car, you will eventually own it and no longer have monthly payments on it. But if you keep leasing cars, you will have continual car payments for vehicles you will never own. There are financial pros and cons to both financing and leasing, but you will have to decide what is right for you.
Down Payments
The down payments in leasing and financing differ greatly. In leases, the down payment often includes the first month’s payment, a refundable security deposit, taxes, down payment, registration fees, and sometimes other fees. When financing, a typical cash price down payment is involved, as well as taxes, registration fees, and possibly other fees too.
Cost Differences
You can generally afford a more expensive car when you lease than if you finance. Car shoppers like leasing because they get to drive a car that they typically couldn’t afford to finance. You can also get a new car every three years (around the time the lease expires) if you lease.
Warranty Protection
Warranty protection is generally better when leasing instead of financing. Significant warranty protection is offered by most car manufacturers for the first three years of a cars life which usually matches up with the length of a lease. When financing a car, your maintenance costs are often higher because the car will be your own outside of the warranty period. As cars age, they tend to acquire more costly maintenance expenses. When leasing, you will always have a newer car, but when financing, you will end up with an older car.
Long Term Intentions
No matter what you decide the right option is for you financially and realistically, it is important to keep your long term intentions in mind. If you like to drive the newest model of a car every few years, leasing is the best option for you. But if you want to buy a car and own it until it eventually dies, financing is the right option. Each person has different needs when it comes to cars and what they want. Making the right decision is important and doing what is best for your situation will benefit you.
