Leasing vs. Financing a New Car

There is a lot to think about when purchasing a new vehicle. When you have chosen the car that fits you and your lifestyle, you then have to determine what type of financing options also work best. One thing that you might be thinking about is leasing this vehicle instead of purchasing it. Leasing is not for everyone, everyone’s personal situation is different and leasing gives car buyers an alternative option to financing that new car you’ve been eying. Let’s go over some of the benefits and drawbacks to leasing vs. financing a vehicle.
Ford Mustang Giugiaro Concept

Leasing

Pros:

  • Lower out of pocket costs when obtaining and maintaining the vehicle
  • Requires little or no down payment
  • Monthly payments are usually lower
  • Can allow you to get a more expensive car that you otherwise may not be approved to finance
  • May offer a tax advantage for business owners
  • Excitement of driving a new car every 2-3 years
  • Always have the latest safety features
  • Always have a new car warranty

Cons:

  • You will always have a car payment – requires predictable and consistent lifestyle
  • You will never really own the vehicle
  • Can only drive a set number of miles per year, if you go over you pay extra
  • Insurance usually costs more for leased vehicles; depending on your age, driving record and location this may not have that great of an impact on your rates
  • Have to consistently maintain your car properly
  • Pay more in the long run for lease benefits

Points of caution when looking into a lease:

  • When you lease a car you are paying for the most expensive years of that car’s life – depreciation for it’s first couple of years. So it’s important to consider a vehicle that retains it value well and not go for cars that will depreciate quickly, this low residual value may affect the rates that you pay for your car.
  • When entering a lease agreement pay attention to any additional costs that you may incur, there may be charges for extra wear and tear, including irrationally high costs for going over your mileage. When you lease, you want to make sure that any surprise costs you might incur are kept as minimal as possible.

Financing

Pros:

  • You will actually own the car some day – you will be free of a monthly car payment
  • The car is yours to sell at any time
  • You are not locked into any fixed ownership terms
  • Less limits on insurance than if you lease
  • You can drive as much and as far as you want without penalties
  • You can customize your car as much as you want
  • You can be better prepared for lifestyle changes if your car is paid off
  • No risk of hidden fees for wear and tear

Cons:

  • Higher monthly payment
  • Requires a down payment
  • Depreciation on the vehicle can mean that you ow more than it is worth for the first 2-3 years
  • In the first years of paying back your loan you will likely be paying down interest opposed to the actual cost of the vehicle
  • Warranty will run out, meaning you will be responsible for any maintenance and repair costs towards the vehicle
  • You will have to trade in or sell your used car

The choice to finance or lease is a personal one that will most likely depend on your lifestyle and financial circumstances. If your life style is predictable and stable and your main goal is to drive a shiny new car every couple years and keep the cost to a minimum then a lease will probably be in your best interest. Otherwise, if you are the type of person that looks forward to a future with no car payment and the freedom to customize and drive to your heart’s content then financing that vehicle is probably your best bet.

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