Buying Vs. Leasing a Car
Tuesday, 7 December 2021
Getting a new car might be on your radar in the near future. As you shop for a new vehicle you are faced with a myriad of decisions, including having to choose whether to lease or buy a vehicle. During your car search, it’s best to understand the difference between buying vs. leasing a car so that you can make an informed decision. In this blog, we will weigh the pros and cons of buying vs. leasing a car to empower you to make the best choice for your situation.
What is Leasing?
A lease agreement is made with a dealership that basically means you will make regular payments to use the vehicle for a set time frame, almost like a long-term rental. Leasing terms are usually 36 or 48 months. At the end of the leasing term, you might be able to arrange to purchase the car, otherwise you would return the vehicle to get a newer model. Terms would be outlined in your leasing contract.
What is Financing?
When you finance a vehicle, you are taking out a loan to repay it. One of the major differences between buying vs. leasing a car is that when you purchase the vehicle, you own it outright when you have finished repaying the loan. Loans can be financed through a dealership, or through a financial institution.
The Pros & Cons of Buying Vs. Leasing a Car
Leasing: Leasing a vehicle could result in lower monthly payments because you are not building equity. This could allow you a more luxurious vehicle that you otherwise could not afford. Early termination could result in cancellation fees.
Buying: It costs more upfront, but your payments build equity in the asset, giving you trade-in or resale value. The sooner you pay it off, the sooner you will free up cashflow for other things. Longer financing terms may not be favourable depending on how the vehicle depreciates.
New or Yours?
Leasing: You will be able to get a new car every few years with the newest technology and features. There is less flexibility for customizing the vehicle; your contract may prevent you from making changes to maintain the dealer’s resale opportunity.
Buying: From the outset, you will have the freedom to personalize your car however you’d like. Eventually you will own your vehicle and you won’t have to deal with the expenses of an aging vehicle and depreciating value of a trade-in.
Leasing: Newer vehicles are covered by manufacturer warrantees for 3-4 years. With any unforeseen repairs, it’s great to know that it should be covered by the warranty. Regular maintenance such as brakes, oil changes, etc. are your responsibility.
Buying: A purchased new vehicle will still come with a manufacturer warranty, and you can often opt to extend the warranty. As the vehicle ages and your warranty expires, you may have to pay for costly repairs down the road.
Leasing: You don’t have to worry about reselling the vehicle and going through the haggling process with an auto dealer or private buyer. On the other hand, your leased vehicle will not have any trade-in value.
Buying: With equity in the vehicle, you can resell or trade it in at any point. As the seller, you have more control over the price you get for it.
Leasing: If you continue to lease, it will cost more in the long run. As long as you lease, you will always have a car payment, which may not be financially ideal for some. You may have the option to purchase the vehicle after the leasing term is complete.
Buying: Financing to own a vehicle will eliminate your car payment at some point, freeing up your finances to save for a new vehicle or meet other financial goals.
When to Lease a Car
Here are some situations where leasing may be right for you.
- You are a business owner and want to deduct leasing costs on your taxes
- You want to save on maintenance costs
- You like the idea of brand new models and luxury features
- You can afford the payments and don’t care about the trade-in value
- Your driving habits fit within the lease kilometre limits
When to buy a car
These are a few situations where you should consider purchasing a vehicle:
- You are a commuter who will exceed the kilometre limit on a lease
- You want to free up cashflow to meet other financial goals
- You want to build up equity in an asset for trade-in/resale value
- You are happy to use the same vehicle for a longer time frame
Does buying vs. leasing a car affect car insurance?
Generally, there is little to no effect on your insurance whether you are buying vs. leasing a car. The only significant difference is when you lease the vehicle the leasing company will be listed on your policy since it technically owns the car. Since you are required to protect their interest, you will likely have to purchase collision and comprehensive insurance for the vehicle. Collision and comprehensive coverages are smart to get on any new car anyway. Without it, you're on the hook for any damage to it that occurs due to a collision or if it is vandalized or stolen. Learn more about Collision and Comprehensive coverage here.
When you purchase or lease a new vehicle, it’s a great time to shop around for your car insurance. Billyard Insurance Group has access to many trusted insurance providers, which gives us the ability to offer amazing deals. Take advantage of our incredible rates; get a no-obligation quote from one of our BIG brokers. Start your quote now.