Financing vs. leasing a car: Which is best?

Auto finance

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So, you’ve decided to move forward with buying a new car (or new to you). Maybe you aren’t in a position to buy a car in cash. This leaves you with one question: should you finance or lease your next vehicle? On the surface, it may seem best to finance so you aren’t throwing money into an abyss to never be seen again, but the answer isn’t as cut and dry as it seems. I’m going to show you the difference between financing vs. leasing a car.

Financing vs. leasing a car: The differences.

When financing a vehicle, you are paying monthly installments until you eventually own the vehicle. This time period usually falls between 36 and 84 months, depending on the dealership or company the loan is going through.

Leasing a vehicle is similar in some ways, but the major difference is that you are “renting” a vehicle for a predetermined timeframe. This is a similar practice to leasing an apartment. When leasing, there is a certain number of miles you must stay under to avoid penalization. At the end of your leasing period, you can be presented to option of a buyout to own the car.

Monthly payment breakdown

Financing

  • remaining balance after down payment/number of months
  • Interest rate on the monthly payment
    • Interest rates are constantly changing and will vary from dealer to dealer

Leasing

  • remaining balance after down payment/number of months
  • “Lease factor”
    • This is a combination of factors to account for vehicle depreciation and the number of miles that are anticipated to be driven

Why would anybody lease a vehicle?

After all, it seems like a bad deal. Who would just want to throw money awake like that? Believe it or not, there are a few scenarios where you may want to lease.

1. Anticipation of decreasing car pricesPerhaps the car market is over-inflated and a buyer wants to wait out those high prices. Leasing a cheap vehicle before getting the desired one may be an option.

2. Wanting a different car every couple years: Some people just want to have a different vehicle every couple years, especially car enthusiasts. This may make financing a valid option for having that dream.

3. Crazy good dealership deals: Sometimes car sales are slow at dealerships. This can lead to some crazy deals happening where it is cheaper to lease that finance. While this might be rare, it’s still something to be on the lookout for. 

4. It can be cheaper: Everybody’s financial situation is different. Because of that, sometimes leasing is the only viable option at that given time.

Should you finance or lease your next vehicle?

This is depend on your situation. Financing a vehicle makes the most sense if you want to eventually own the vehicle, but leasing is certainly an option for a short-term solution. It’s best to talk to your dealer about both and any potential incentives they are offering.