Leasing Versus Financing: Which One Is Right For You?

Buying a new vehicle can sometimes be overwhelming. These days, signing the paperwork for a new car feels like buying a house versus a set of wheels. Before you get to that, however, it’s important to know which payment method you will choose. Aside from cash, you have two primary options: financing and leasing.

In recent years, leasing has been strong and there are many benefits to it. When I used to sell cars, leasing was a lot like “declawing the monster.” Despite some of the horror stories out there, leasing is a great way to go.

Still, it might not be the best option for you. In that case, financing comes into play, and that has benefits too. Which one is right for you? Our list should help you decide. Keep in mind, it’s aimed at new cars. If you are buying something pre-owned, see our comprehensive guide before taking your first test drive.

Leasing Advantage: New Every Two

If you are a person who likes the latest and greatest, leasing is definitely for you. Every two or three years, you are looking at a shiny, new vehicle. Leasing is a sure fire way to prevent boredom with what’s in your driveway.

If safety is one of your biggest concerns, leasing ensures you are always getting the most updated and advanced safety technologies. Same goes for fuel economy. You will always have the car with the latest, most efficient engine advancements.

Financing Advantage: Emotional Attachment

If you sense you will really like a particular vehicle, financing is the way to go. You are under no obligation to trade and you can drive it until “the wheels fall off.” I know a lot of folks like this. They use a vehicle to its full potential and don’t see the need to buy another one until it literally falls apart.

In general, it’s not advised to buy out your lease at the end. The payment will often be higher than what you were originally paying.

Leasing Advantage: No (Or Very Little) Down Payment

When I used to sell cars, I recommended 10 to 20 percent down if the customer was financing. Leasing works differently, requiring either very little or no down payment. Just watch the advertisements closely – sometimes they flash a low lease payment but with a significant portion down.

On my personal vehicles, I put just enough down to cover the tax, title, and license (include in a lease). That takes the edge off so to say and you won’t be paying interest on that portion over the course of the lease. Generally speaking, with a lease and down payments, less is usually more.

This article from Bankrate explains some of the common blunders people make when leasing – putting too much down being one of them.

Financing Advantage: No Mileage Penalties

If you anticipate putting on 100,000 miles in the course of a few years, financing is probably better. Leases that offer the lowest monthly payment will likely limit you to 10,000 to 12,000 miles a year. This article from Edmunds.com nicely explains high mileage leases and how the residual values (how much the car is worth at the end of a lease) would compare to more traditional leases.

Overage mileage penalties can be a burden. Also, if you have an active family, you don’t want to get halfway through the year all to realize you can’t drive your vehicle. Leasing can be a bit of a balancing act when it comes to determining your vehicle usage. If you think you are going to exceed 800 to 1,000 miles a month, leasing may cut it too close for you.

This is where I have a hard time with leases. You always seem to drive more than you think, especially if your schedule changes or if unexpected things pop up. And you don’t get credit for unused miles either. If you turn a lease in say 4,000 miles under, you will not be reimbursed for those miles, even though you paid for them while you had the car.

When financing a vehicle you don’t have any of these hassles.

Car Buying

Leasing Advantage: Always In Warranty

When you finance a vehicle, past a certain mileage, maintenance will be on you. With leasing, you stay under the protection of full factory warranty.

As a former Service Advisor, I can tell you it doesn’t take long for repair bills on higher mileage cars to add up. Those repair bills can be painful if you are already making monthly payments on the vehicle.

With leasing, the unforeseen mechanical problems are of no financial burden to you. With the exception of oil changes, tire rotations, and maybe some wipers blades (and some automakers even cover these things for a period of time) your major service bills should be zero.

Financing Advantage: Less Overall Restrictions

Let’s say you want to lift up a truck for aggressive 4×4 driving, or boost the engine performance of a sports car, then financing is probably better. Leasing works only if you plan on returning the vehicle exactly how you got it. Financing is more flexible with regard to vehicle condition too. For example, you probably don’t want to lease a truck you plan to take on the farm or construction site. If there is excessive damage or wear and tear at lease end, barring a protection plan you purchased at the beginning, those costs are on you.

In certain situations, however, leasing may present some advantages if you are a business owner as this article from Savvy points out.

Lastly, financing deals can be a little more forgiving should you need to get out of them. You can trade to another vehicle more easily, and provided your credit is good, roll the difference over. You can even pay them off outright, many times without penalty, before the full term. With leasing it doesn’t work that way and early termination fees can apply. Think of it like trying to leave an apartment lease early – it’s similar with an automobile.

Final Thoughts

There is no right or wrong way to obtain your new vehicle – just the way that is right for you. This list is really a general overview and should get you started. I would always recommend finding a trusted sales consultant at your local dealership who can walk you through the car buying process. Still, if you have questions, please contact us.

I will be happy to respond to you personally.

*Carl Anthony is Managing Editor of Automoblog and resides in Detroit, Michigan. 

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