Most people are faced with this decision at some point in their life and are often confused with which option is better. Determining if leasing or financing is right for you largely depends on what your needs and wants are from a vehicle.
What’s the Difference?
There are a lot of differentiations between the two options, but the main difference is ownership of the vehicle. When you lease a vehicle you do not own the vehicle and the payments you make go to the lessor for the use of the vehicle.
On the other hand, when you finance a vehicle the payments are often more, but when you have completed your payments you have 100% ownership.
Another difference is that lease agreements also have stipulations for “regular” wear & tear on the vehicle which is or is not covered, annual mileage limits, early termination penalties and other conditions which differ with each lessor.
It is important to consider these factors when determining which option is right for you.
How do these options work?
Financing:
Financing a vehicle is a lot like taking a loan from the bank. When you finance, you enter into a contract with the lender for either weekly, bi weekly, or monthly payments over a set period of time (depending on what you have agreed upon). You are often required to have a down payment and once the contract is in place it is your legal responsibility to make your payments on time or you could face penalties or repossession of the vehicle.
Leasing:
Leasing is a lot like renting. You sign a lease agreement as for a set period of time (2 – 4 years usually) where you will make weekly, biweekly, or monthly payments to the lessor. The payments are often less than a traditional finance, but this is because you are paying for what they determine as the depreciated value of the vehicle.
Once the lease is over you will return the vehicle to the lessor and pay for anything that is not covered in the lease agreement based on the stipulations in the contract.
Making the decision can be tough. If you’re looking to have no limits or restrictions on your vehicle, financing is the way to go. If you want to drive a new vehicle every 2 –4 years then perhaps leasing is the right option for you!