What Is The Difference Between Leasing And Financing?
Your financial goals are usually the driving force behind choosing to lease or finance a car. There is no right or wrong choice, just what’s right for you, at that point in time.
Leasing is known for offering lower monthly payments than financing, but that doesn’t make it cheaper. This article explores the difference between leasing and financing and will hopefully help you determine what’s better for you, right now.
WHAT IS FINANCING?
Financing is borrowing money to buy a vehicle. Your payments are usually directed towards a lending company, not the auto dealer. This is because the financier buys your vehicle for you and permits you to pay them back, making money from the interest payments. After the payments are made, you own your vehicle outright.
WHAT IS LEASING?
Leasing can be compared to borrowing. The dealer remains the owner of the vehicle but allows you to drive it for a monthly fee. When the lease is up (usually 2-5 years), you return the vehicle and stop making payments.
LEASING VS FINANCING: A COST COMPARISON
- SHORT-TERM: In Canada, monthly lease payments are 30%-60% lower than loan payments. This is when comparing the same car, at the same price, for the same term, with the same down payment. So, if you plan to have your car for a short period, leasing is often beneficial.
- LONG-TERM: Over the course of several years, the long-term game has always favoured financing. Your payments may be slightly higher, but in the end, you get to keep your car. In essence, the cost of buying one car to drive for ten years, is much more affordable than four or five cars over the same period.
DOES THE CHOICE AFFECT YOUR INSURANCE?
Not directly. Leasing or financing a vehicle will make no difference to your insurance company. What they care about is the make, the model, the year, the condition, etc. So if you wanted to lease or finance the 2021 Chrysler Pacifica today, for example, you would pay the same in insurance either way. However, if you leased the Pacifica for two years, and then in 2023 leased a new Grand Caravan, your insurance would likely increase to cover the cost of it being a new vehicle again. That wouldn’t happen if you kept driving the original Pacifica. This continues for as long as you keep driving brand new vehicles.
YOUR CREDIT MAY BE A DECIDING FACTOR
A poor credit score is going to make things more difficult whether you’re financing or leasing. There is a better chance of getting approved for a lease over a loan though. However, many have found it easier to get an auto loan through a dealership than getting a generic loan or line-of-credit from the bank. This is because of the built-in collateral the vehicleoffers and because of the independence in-house financing companies have over the banks.
LEASING OR FINANCING, WHICH IS RIGHT FOR YOU?
If you’re still undecided, then we’d like to suggest contacting Rose City Chrysler’s Finance Department. Speaking with a finance professional can help you see what options are available to you, including the rates.