CAR LEASING VS FINANCING | Compare | Toronto, Mississauga, Brampton Car Loan
Financing vs Leasing a Vehicle
There are so many decisions you have to make in getting a new vehicle that it’s hard to make them all at once. Will you choose a sedan or compact? Do you prefer automatic transmission or standard? And then there’s the biggest issue of all, how you want to pay for the new vehicle. Do you want to finance it and own the vehicle, or would you prefer to lease it? Both of these options have different benefits, so it’s best to think through what is best for you.
Normally when you finance a vehicle and will own it outright, there are many different fees, taxes and delivery charges that are added into the entire vehicle cost, and after you decide how many months you want to pay for it, this whole cost is spread over these months. If a payment term is longer in duration, it usually means that the monthly payments will be smaller and the interest rates will be lower. It’s sometimes tough to figure out how many months to stretch your payments over when you are buying a vehicle through financing.
The term is usually shorter when you lease a vehicle, often three years or less. When the leasing company decides the value of your car or truck when your leasing term ends, they look at the condition, mileage, the equipment and other factors to arrive at the ‘residual value’, which is how much they think the vehicle will be worth after your lease is up. Your monthly payments are calculated based on the difference between the sale price and the predicted residual value. The monthly payments for a lease are usually lower than when you buy through financing, because it takes less money to borrow for the lease than for the whole vehicle purchase.
Pros and Cons of Leasing a Vehicle
When you are leasing a vehicle you are making payments every month in exchange for using and possessing a vehicle instead of buying it outright. It is a good option for Mississauga drivers who prefer to get behind the wheel of a new car, SUV or truck every three or four years. There are a number of conditions to be aware of, though, and one of the most important is the maximum kilometres allowed every year for the duration of your vehicle lease. There are usually strict requirements about regular servicing of the vehicle you are leasing, and if for some reason you have to break your car lease there can be very hefty penalties to pay. Typically, leases are financed through automotive dealers, and some financial institutions offer the service too.
Benefits of leasing are the lower monthly payments, and the freedom to return the vehicle without any headaches once the lease term is finished. Since vehicle lease payments are often lower that financing payments, you can sometimes get the opportunity to lease a fully loaded, high end vehicle that otherwise would be prohibitive to finance. When returning a vehicle to a dealership after the lease term, you have the option of buying the vehicle and holding on to it to resell to someone else. Usually though, drivers who lease like to start fresh in a new lease cycle all over again. Another benefit of leasing is that the manufacturer’s warranty period usually falls within the period of a vehicle lease, so there are usually no large repair items during the term. Also, if you use a leased car for business, you can always deduct it as an expense on your annual Canadian tax return.
Pros and Cons of Financing a Vehicle
When you purchase a vehicle, you are making monthly payments to a dealership or else directly to a bank. The length of time a car loan lasts can be anywhere from one year to eight years, which really affects the amount of the monthly payment. It’s usually possible to pay off your car loan faster if you want, by either doubling up on payments or making additional payments at any point. After your car loan is paid off, you fully own the vehicle.
The best part of financing a vehicle is that you own it fully after your payments end, and you can use it how much you like for the life of the vehicle. Since the average car in Canada lasts around ten years, you can avoid a lot of major repair expenses by keeping up on regular maintenance schedules. Financing is also great because you can break the deal if you really need to without incurring a lot of expense, whereas breaking a vehicle lease can incur a very large penalty amount. Financing a vehicle that you own also allows you to make modifications and changes to it in any way you like.
When you are financing a vehicle, you have to take depreciation into account. Even if a zero percent offer looks attractive, it can mean that an obligatory 72-month long loan term is associated with it. This would lead to a long financing term of six or seven years, and in worst cases you could end up owing more on the vehicle than it is worth once it has depreciated.