Finance vs. lease:
Which is better?
What are your goals? We all have different priorities - in cars, life, and finances. When deciding on financing vs. leasing, what's right for one person can be totally wrong for another.
If you prefer to own your vehicle outright, and plan to own it for the long term, then financing will be your best option.
- To build up trade-in or resale value (equity)
- The feeling of being payment-free after paying off your loan
- The freedom to customize your car.
You Don’t Mind
- Selling or trading in your vehicle
- Unexpected repair costs after the warranty has expired.
- A stable, predictable lifestyle
- The need to drive more-than-average kilometres each year.
Leasing usually offers lower monthly payments than financing. It has the benefit of owning a new car every two or three years.
- To drive a new car every two or three years
- Possibly lower monthly payments
- The latest safety features and a car always under warranty.
You Don't Mind
- Changing vehicles every few years
- Being limited to a set number of kilometres each year.
- A lifestyle that may change or a move in the next couple of years
- No problem taking really good care of the lease vehicle.
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 their vehicle at loan-end and the leaser returns their vehicle at lease-end.
The long-term cost of leasing is always more than the cost of financing, assuming the buyer keeps their vehicle after loan-end. If a buyer keeps their car after the loan has been paid off and drives it for many more years, the cost is spread over a longer term.
In short, 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.