Published on October 1st, 2012 | by Jordan

Is it Better to Lease or Finance a New Vehicle?

Many prospective car owners face the difficult decision between leasing and financing when buying a new vehicle, but it’s important to remember that there is no ‘right’ answer for everyone. While leasing could be the best option for one person, it might be completely wrong for another. For those unfamiliar with the term, leasing is when you purchase the use of a vehicle for a specified period of time; at no point are you the actual owner, but you are responsible for maintenance, insurance and registration while it’s in your possession. Financing basically entails purchasing and paying for the vehicle on credit; it’s more expensive, but the car is yours without restrictions or conditions. Before making your decision, it’s important to ask yourself some important questions.

Do you want to own your vehicle?
A leased vehicle will need to be returned to the dealership at the end of the pre-determined lease period. If ownership is important to you, leasing might not be the right choice. But if you don’t find yourself attached to your vehicles and prefer to change models every few years, it might be the way to go.

How far do you drive annually?
LeaseHow Far Do You Drive Annually? agreements come with mileage limits, and exceeding them can substantially increase the amount you owe at the end of your term. Many drivers stay below 25,000 to 30,000 kilometers annually, so it might not be an issue for most. But if you tend to drive beyond that range, you should consider conventional financing to ensure you’re not hit with a ton of additional fees. It’s important to consider mileage limitations before you agree to a lease.

Lease conditions
Since you are not legally the owner of a leased vehicle, you’ll be bound by a number of restrictions and conditions. For example, any modifications contrary to the lease agreement or damage in excess of normal wear and tear (what that entails should be discussed beforehand with the dealership) will be tallied up and charged to you upon the vehicle’s return. And if you’re thinking about ending a lease early, you might want to reconsider; some lease companies will charge anywhere from six months to a full year of lease payments as the penalty for early termination.

Closed vs. open-ended leases
A closed-end lease means that the lessee is not responsible for the value of the vehicle when the lease term is expired. This is the most common type of consumer lease; when the term has ended, the driver simply returns the car with no additional responsibilities aside from potential fees incurred due to damage or mileage overages. An open-end lease means the lessee is responsible for the value of the vehicle at the end of the lease term. At the end of the lease agreement, the lessee would pay fair market value for the vehicle, essentially ‘buying it out’.

NegotiatingLeasing vs. Financing
Don’t think that negotiations are off the table because you’re not purchasing the vehicle. Just like financing, everything in a lease is negotiable. Try to match the term of the lease with the length of time you plan to use the car. Also, you’ll ideally want to keep the lease term shorter than or equal to the length of the manufacturer’s warranty. This will limit the amount you may be required to pay in maintenance expenses. Lastly, don’t compare leases solely by the monthly payment; different leasing companies offer different deals, so you should examine all the conditions and requirements to make an informed decision.

Leasing vs. financing – like we mentioned earlier, there really is no right answer. Leasing is great for those who want lower monthly costs, have a stable lifestyle and take good care of their cars. And financing works well for those who may drive more than the average motorist and dislike loans and long-term monthly payments. Whichever you decide, it’s important to do plenty of research.

Need help? Turn to CAA and find out what you should look for when buying a car.

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