Leasing a vehicle
When you lease a vehicle, you just make regular monthly payments to drive it for a set term, which is typically about 3 to 4 years. At the end of the lease, you simply return the vehicle, pay any outstanding fees and walk away.
The pros of leasing a car
Few upfront costs
When leasing a car, there may be fewer upfront costs. Usually, there’s little to no down payment, and you just need to make the first month’s lease payment and provide a refundable security deposit.
Lower monthly expenses
Monthly payments on a lease tend to be considerably lower than what you would pay if you were to finance the same vehicle. That’s because, with a lease, you’re only paying for how much the vehicle will depreciate during the lease term.
You get to drive a better quality vehicle
With lower monthly payments, some drivers opt for a higher-end or better-equipped vehicle than they might otherwise be able to afford if they were to finance it.
When leasing a new vehicle, you’ll get to drive it while it’s likely still covered under the manufacturer’s warranty.
No need to sell the vehicle
At the end of your lease, there’s no need to find a buyer or negotiate a selling price – all you need to do is return the car.
The cons of leasing a car
A lease agreement usually sets a limit on the number of kilometres you can drive. If you’re over the limit at the end of your lease, you may have to pay an additional fee. You usually can’t get a credit for the kilometres you didn’t use, so be sure to estimate how much you plan to drive before agreeing to the terms of the lease.
Additional costs for excess wear and tear
At the end of the lease, you have to return the car in relatively the same condition it was in when you first picked it up. If there’s excessive wear and tear, you’ll likely be on the hook for any repairs or replacement parts.
Fees if you need to end the lease early
If your plans change and you decide to turn in your vehicle before the end of the lease, you'll likely need to pay additional termination fees.
Never ending payments
Since the car is owned by the dealership, you don't build equity as you make your monthly payments, and you must return it when your lease is up. As a result, leasing new cars constantly can be more expensive than purchasing a vehicle and maintaining it for a few years after paying off your loan.
Financing a vehicle
When you finance a vehicle, you borrow money and make loan payments to pay down the principal and interest over a set period of time. As you repay the principal, you build equity and, once the loan is paid, you own the vehicle.
The advantages of financing your next car
You own the car once the loan is paid
Once your car is paid off, it’s 100% yours. It’s an asset you can sell or trade-in for a new vehicle, and you can continue driving it payment-free.
No limit on kilometres
When you finance your car, you don’t need to worry about the number of kilometres you drive each year.
The disadvantages of financing a vehicle
Higher monthly costs
Monthly financing payments are usually higher than lease payments because your loan is based on the entire purchase price of the vehicle plus interest and other fees.
You’ll need a larger amount upfront
If you're financing your vehicle, you may need to provide a down payment of about 10-20% and pay taxes and registration fees upfront.
Maintenance can get expensive
Unforeseen mechanical issues and the cost of ongoing maintenance as the car ages may make it expensive to keep. Due to the unlimited mileage, a larger odometer reading could reduce your vehicle’s resale value.
Depreciation could cost you
Depreciation refers to the amount a car’s value decreases over time. New cars depreciate faster than used cars, so if you have a long-term loan and decide to sell the car early, you could end up owing more on the loan than what the car is worth.
The choice between leasing and financing your next car will come down to your lifestyle, personal preferences and financial situation. Want to know the potential cost of auto insurance for your new car? Contact us for a quote.
Is it better to lease or finance your next car?
If you’re planning to lease or finance a new vehicle, there are pros and cons to consider, but making the right decision also comes down to your lifestyle and financial priorities. Here are some of the key differences.
These tips are provided for information and prevention purposes only. They are general in nature, and The Personal cannot be held liable for them. We recommend using caution and consulting an expert for comprehensive, tailored advice.