When it comes time to buy a new vehicle, one of your first thoughts is probably going to be “how can I afford a new car”? Fortunately, you don’t have to pay for your new ride in full upfront—you can choose to either finance or lease a car. Both of these options allow consumers to get a new car without having to pay thousands of dollars all at once. But what exactly is the difference between leasing a car and financing one? Let’s look at some key differences and benefits of each option.
Perhaps the biggest difference between leasing and financing a vehicle is ownership—when you choose to lease a vehicle, you technically don’t own it. You pay to have the vehicle in your possession every month, but when the lease is up, you have to return it to the dealership. However, there may be lease-to-own options with some dealerships, which allow people to buy their leased vehicle when the contract is up. But if you want to actually own the vehicle, you’ll need to finance it. Financing allows you to pay monthly payments and once you pay the purchase price in full, the vehicle is yours.
Cost is a huge factor when it comes to choosing between leasing and financing. While both options are more affordable than writing a check for the total cost of the car, there are still some financial factors to keep in mind. When you lease a car, you’ll typically have a lower monthly payment than if you were to finance a car—this is because monthly lease payments tend to be based on the car’s depreciation while it’s in your possession.
On the other hand, financing monthly payments are based on a vehicle’s purchase price, so they tend to be higher. Additionally, leases tend to have a lower downpayment, too. However, if you’re looking at the bigger picture, it can be more affordable to finance a car because, in the end, you’ll own the vehicle and will eventually pay it off whereas, with a lease, you’ll have to decide to lease another vehicle or make a purchase.
Repairs and Maintenance
While each contract can be different, a lease often includes repairs covered by a warranty—this means the person leasing the vehicle could potentially not have to pay out-of-pocket for repairs and maintenance. So if something goes wrong with a leased vehicle, the “owner” can take it to the dealership and have it fixed. But when you finance a car, it’s all yours—including the problems that may come with it. So, the cost of repairs and maintenance will be your responsibility when you finance a vehicle.
One possible downside of leasing a car is that leases typically come with mileage limits. This means that the driver of a leased car cannot drive over the annual mileage limit—while this limit is usually around 12,000 miles, this limit has to be kept in mind. A mileage limit may result in not being able to take the car on a road trip or even having two cars to avoid the penalties of going over the limit. However, when you finance a car, there are no mileage limits because the car is yours to do with as you please.
So, what’s the overall verdict? Well, leasing can allow you to make more affordable monthly payments and have less responsibility for maintenance, but you don’t get to keep the car in the end. And financing can sometimes have more expensive payments but the car is yours to keep and use however you want. Ultimately, it’s up to you to decide which option is right for your financial situation.