What are your goals? We all have different priorities—in cars, life, and finances. When deciding on leasing vs. financing, what's right for one person can be totally wrong for another.
Generally, leasing offers lower monthly payments than financing, as well as the benefit of owning a new car every two or three years. However, financing offers its own set of advantages.
To drive a new car every two or three years
Lower monthly payments
The latest safety features and a car always under warranty
You Don't Mind
Trading in or selling used cars privately
Building ownership equity
A stable, predictable lifestyle
An average number of miles to drive
No problem properly maintaining your car
To build up trade-in or resale value (equity)
Complete ownership of your car
The feeling of being payment-free after paying off your loan
The freedom to customize your car
To drive your car for a long time
You Don't Mind
Unexpected repair costs after your warranty has expired
Higher monthly payments
To drive more-than-average miles
Possible lifestyle changes in the near future
For the same car, same price, same term, and same down payment, monthly lease payments will always be 30%-60% lower than loan payments. This is still true even when compared to 0% or low-interest loans.
The medium-term cost of leasing is about the same as the cost of financing, assuming the buyer sells or trades his or her vehicle at loan-end, and the leaser returns his or her vehicle at lease-end.
Some comparisons sometimes show that financing can cost a little less than leasing due to fewer fees, lower total finance costs, and the assumption that a purchased vehicle will return full market value if it is sold or traded at the end of the loan. However, when the benefits of wisely investing monthly lease savings are considered, the net cost of leasing can be less than financing.
The long-term cost of leasing is always more than the cost of financing, assuming the buyer keeps his vehicle after loan-end. If a buyer keeps his car after the loan has been paid off, and drives it for many more years, the cost is spread over a longer term. That means the cost of buying one car and driving it for ten years is less expensive than leasing or buying four or five different cars over the same period.
If long-term financial cost savings were the most important objective in acquiring a new car, it would always be best to buy the car and drive it for as long as it survives, or until the cost of maintenance and repairs begins to exceed the cost of replacing it. However, many automotive consumers have other more immediate objectives that are more important than long-term cost savings.
Here’s some good news: there is no difference—in regard to car leasing vs financing—when it comes to your insurance. It doesn’t affect your insurance costs at all. Your insurance rate comes down to a number of factors, like your driving history, where you drive, how long you’ve driven for, and even the type of car you drive.
But while your rate will be affected by these things, it won’t when it comes down to car leasing vs financing. However, your insurer and your financer/leaser do need to know about one another.
When you finance or lease a vehicle, someone is holding the interest on that vehicle: a bank, a dealership, etc. Because of this, the name of the leasing company or the financier will need to appear on your insurance policy. This process is in place so that their investment is protected.
If your car is in an accident and is written off, the situation remains the same in terms of car leasing vs financing. Insurance will pay off the finance or leasing company first, and if the car is worth more than you owe, you will receive the remainder. In the opposite situation, where you owe more than your car is worth, something called “gap insurance” comes into play in order to cover those costs.
When it comes to leasing vs financing Canada, a bad credit score is going to make things more difficult in both situations. There is a higher likelihood that you will be denied a loan, and your rate is going to be on the higher side. However, your chances of getting a loan with bad credit is substantially higher with Go Auto than at other dealerships. That’s because we have an in-house finance company, Yes Plan Auto Finance, who can approve you for a loan even if the banks can’t.
That being said, getting an auto loan with bad credit is a lot easier than taking out a personal loan with bad credit. If you don’t pay back an auto loan, the lender can take the car you purchased as collateral, then sell it to help recover some (or all) of their cost, thereby avoiding a loss. However, with bad credit, your rate and monthly payments will be higher than someone with a better credit history.
The snag with leasing vs financing Canada occurs on the leasing side, where a poor credit score is more likely to hurt you. The idea of using the car as collateral doesn’t apply with a lease. With a lease, you never owned the car. The dealership has owned it the whole time. Once you’ve broken your lease agreement (by not paying on time), they’re simply left with a broken lease and a vehicle that isn’t worth nearly as much as it was when you started leasing.
This is why a good credit history is very important while leasing, and why leasing usually means lower monthly payments and smaller down payment requirements. It’s kind of like a reward for your good previous behaviour.
In terms of leasing vs financing Canada with bad credit, go with financing. It will be a bit more expensive, but it’s the safer bet in both the long and short term.