Sun 13 May 2007
Which is better: Car Financing or Car Leasing
Posted by Robin Bal under Financial Planning , LifeStyleIf you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
This is a common question amongst many car buyers. Depending on who you talk to, some people may feel that leasing a vehicle is the better option, especially if you enjoy driving a new car every couple of years. On the other hand, if you enjoy a car payment-free lifestyle, buying is without a doubt the better choice.
Purchasing a new car is always an exciting time in life; however, it can also be confusing and time confusing, especially with so many different types of financing options available. Should you purchase your next vehicle outright or would it be better to lease it? Which option will be better financially for you? Read on for more tips to help you make the right decision for you and your finances the next time you’re in the market for a new car.
It’s important to understand that there is not a clear cut answer to this question. It really depends on your needs and situation. When considering whether it would be better to buy or lease, it is important to understand all of the terms regarding the lease. Generally, the lease will be for a specified period of time and you will probably be limited to the amount of mileage that can be placed on the vehicle. In the event that you go over that specified mileage at the end of your lease period, you will be liable for paying the overage. Lease agreements also pay what is known as a finance charge at the end of the lease agreement. So, it is important to understand that while your lease payments may be less than payments would be if you bought the vehicle outright, you will still be responsible for a sum of money at the end.
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In addition, it should be pointed out that you do not build up any equity in a vehicle when you lease it, only when your purchase it. On the other hand, when you purchase a vehicle and drive it for a long period of time, while you do build up equity, that amount declines the longer you own the vehicle. With leasing, you have the advantage of only having to pay for what you use while with the buying option you must pay for everything, regardless of whether you use it or not.
Leasing is ideal for person’s who prefer lower monthly payments, and for people who like driving a different vehicle every couple of years. With leasing, you have the option of keeping the vehicle for 12 to 48 months. Once the lease term ends, buyers also have the option of purchasing the car at its current value.
This can be important to many people because it provides you with the benefit of having the latest safety features on your vehicle and the comfort of knowing you won’t have any warranty problems. If you don’t care about whether you build-up equity in the vehicle and feel you won’t go over the mileage limits then leasing may be the right option for you.
On the other hand, buying the vehicle outright; will mean higher monthly payments but the overall cost is about the same as leasing a vehicle, especially when all factors are taken into consideration, such as mileage overage payments and finance charges. Purchasing also gives you the benefit of actually owning the vehicle and if you opt to pay off the loan and keep the car, it can mean you won’t have a vehicle payment.
You must also take into consideration; however, that when the warranty expires you will be responsible for the cost of repairs. This can be offset when you take into consideration that you don’t have to worry about going over mileage limits as with leasing. Additionally, there are no surprise costs at the end as there are with lease options. In the end you really need to give thought to your own situation, needs and desires.
May 14th, 2007 at 9:46 am
I personally wouldn’t lease a car, i prefer buying it, reason is because you can sell it afterwards! Of course a car is not an investment, it’s worth half as soon as you hit the road, but i’m happy i did buy my Jeep TJ, because i did, i was able to quit my job, sell the Jeep, and have a little money buffer to survive while working on my stuff at home. If i’ve had a loan, i would’ve been stuck at that job till the end of the term, so i’m quite happy i decided to buy it in the first place. However you have to always look at your needs and wants, i obviously didn’t “need” a jeep living in Montreal, but i wanted it, and was able to get a nice amount when i sold it.
You’re right about the monthly payments thing, they were astronomical (+ gas) ! hehe glad i sold it!
May 14th, 2007 at 9:58 pm
Hey Jon,
Good to see you back mate. Didn’t know you had a Jeep, I drive a Jeep Wrangler and its on a lease. 3 years lease, servicing, car repair, insurance, registration and a back up car in case of a breakdown, all on them. At the end of 3 years I have to option to return the car, extend the lease or pay an x amount and keep the car. I got a good deal. Compared to a finance this was actually a better deal for me. GAS is cheap in this part of the world too, but I guess lease deals are different in other parts of the world.
Take care and Cheers mate.
May 15th, 2007 at 1:51 am
I’m on my second lease, which is perfect for me. 4 year term, take back and get a new one at the end of 4 years, at no additional cost because I don’t drive enough to incur the extra mileage (only 6,000 km so far and its a year and a half old) I’m allowed 10,000 km a year. Also, under warranty which means very little out of pocket expenses to keep it up.
I could purchase it outright at the end of the term, but the expense of a new 4 yr lease turned out to be the same as what I would have to borrow to buy it out plus all the maintenance for the next 4 years.
I think I’ll get a truck next!
May 15th, 2007 at 1:59 am
Hi Anna,
I have found lease to be a better deal, and I am allowed 25,000 km each year and over the years has become more popular than a Bank finance. I drive about 20,000km each year so I need a hassle free car and a new car kinda remains hassle free for four years.
Take care and cheers.
May 15th, 2007 at 6:38 am
I’m thinking of something, i just watched the movie “An Inconveinient Truth” that talks about global warming and all, and i’m very ecoo-minded. I’m wondering if whatever the price we pay for a vehicle, be it leasing or buying. Does the price meet up with the fact that driving a “gas” will increase global warming. i think this is priceless. So my next car will definitely be a hybrid, or something like that
(though i loved my Jeep, if they could come up with a hybrid model that would be awesome) 
May 15th, 2007 at 11:03 am
Leasing is great with cheap financing.
If you get higher interest on your investments than you’re paying in financing then it’s better to keep the cash invested and make payments on a lease.
Leasing is also good for businesses that would rather funnel their capital into growth and expansion.
I used to be a big fan of “just buy it”. Not so much any more.
May 15th, 2007 at 12:57 pm
Hi Shane,
Leasing sure is great with cheap financing.
I used to be a big fan of just buy it too, but no more, leasing I feel is a better option. Also as you mentioned if you are getting a higher interest on your investments, keep it invested and pay the lease. Good point mate.
Take care and cheers.