Choosing between leasing or financing your vehicle can easily become one of the most difficult parts of the car shopping experience. The trouble is, both options come with different sets of advantages and disadvantages. But with most Canadians spending 20% of their household income on their auto loan every year, choosing a suitable option is a task that shouldn’t be overlooked.
Here we’ll tackle the pros and cons of financing and leasing, so you can make the right decision for your unique lifestyle.
What Does it Mean to Lease a Car?
If you’re like most Canadians, buying a vehicle outright is not an option. That is why most dealerships offer leasing options for their vehicles – allowing you to borrow money for a short period of time and paying it off in regular monthly increments (typically for 12 to 60 months). Unlike financing, your lease payments only cover the amount that your vehicle will depreciate over the lease term. Meaning that your monthly payments will be lower than when choosing the financing route.
When your lease term ends, the car dealership will present you with an option to buy out the vehicle. You can do this by paying for the difference between the purchase price and the residual value.
What Does It Mean to Finance a Car?
At its most basic, the choice to finance a vehicle means that you’ve agreed to buy a car over a set period of time. Once the term you and the dealership agreed upon has finished, the vehicle will officially belong to you. This may result in higher monthly payments during the financing term, however, once the term ends, so do the payments.
At this point, you may consider selling the car and putting the profit towards a new purchase or you can keep it until a major repair is required.
How to Choose Between Leasing or Financing a Car in Canada?
Pros & Cons of Leasing
Prior to making a decision, it’s important to figure out the amount that you’re able to spend on a monthly basis; making sure that the new expenses fit comfortably into your lifestyle.
If you’re looking at a pricey vehicle, leasing is a great way to lower your monthly payments. However, once the term on your leased vehicle is due, you will be required to either buy-out the vehicle or return it and repeat the car shopping process.
Another pro to leasing is the peace of mind it can provide. Since leases are generally under four years, the vehicle is almost always going to be covered by warranties if any damage were to occur. Ultimately, this is a convenient option for those who prefer to stay on top of the newest models and don’t drive enough to go over their kilometre limit (typically, 24,000KM annually). If this sounds anything like you, then leasing a car vs buying a new car is the right choice!
Pros & Cons of Financing
Alternatively, financing a vehicle gives you the freedom to use it at your convenience. This is because you will not be penalized for kilometre overages. Financing a vehicle also means that the monthly payments will eventually end, however, since most warranties only cover 60,000KM, all repairs will become your responsibility.
If you’re looking to improve your credit history or have bad credit, car financing is a great way to improve your credit score. This is because staying on top of your payments and paying them off on time shows lenders that you are responsible with credit, giving you a chance at a better interest rate next time you’re in the market.
If you drive a lot or feel comfortable shelling out a little more monthly to own your vehicle, financing is the best option for your lifestyle. If you’re looking to save on a used vehicle, the financing route will most often be your only choice. This is because most dealerships don’t offer the option to lease used vehicles.
The Bottom Line
As with any major financial decision, it’s important to figure out how the costs play into your lifestyle. Consider the following:
- Monthly car loan payments
- Down payment
- Interest rates
- Annual mileage
In the end, the choice to lease versus finance is a personal one and will ultimately depend on your preferences and budget. With leasing, you are getting lower monthly payments and warranties to cover most damages, but have a limit on your kilometres. With financing, your payments are higher and repairs are not covered once your loan term is over, however, there are no mileage restrictions and you’ve got a down payment ready to go for your new vehicle.
If you’re in the market for a new or used vehicle, Go Dodge Don Mills would be happy to help. Being part of Canadas largest auto group means we’ve got hundreds of options and great deals to choose from. Book a no obligation test drive today!