Finance vs. Lease: Which is better?

The choice between financing and leasing is personal, influenced by our unique life goals and circumstances. There’s no universal answer to whether financing is better than leasing or vice versa. It’s about finding the option that aligns best with your lifestyle, in cars, life, and finances.

In this blog, we will compare finance and leasing side-by-side to help you determine which option would be better for you, your family, and your future.

Financing


Why you might be better suited for financing: You prefer to own your vehicle outright and plan to own it for the long term.

You want:

  • 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
  • Covering unexpected repair costs after the warranty has expired.

You have:

  • A stable and predictable lifestyle

The need to drive more-than average kilometers each year.

Leasing

You might be better suited for leasing if you prefer lower monthly payments and like to switch up your vehicle every two to three years.

You want:

  • Switching it up and driving a new car every two or three years.
  • Possibly lower monthly payments
  • The latest safety features that are always covered under warranty.

You don’t mind:

  • Changing vehicles every few years
  • Being limited to a set number of kilometres

You have:

  • A lifestyle that may change or a move in the next couple of years
  • No problem taking excellent care of the leased vehicle.

To expand on leasing further, it’s important to remember the difference between leases. There are two kinds of leases: open-end leases and closed-end leases.

Let’s break down the two.

Open-end leases: As the lessee, you pay the difference between the lease-end retail value and the lease agreement's residual value. However, an open-end lease can be risky since the vehicle’s residual value depends on market conditions and its overall condition. The owner will identify the vehicle’s approximate depreciated book value when the lease agreement is made, but this value can fluctuate.

Closed-end leases: Also known as a “walkaway” or “fixed price” lease, a closed-end lease is the best option if you seek minimum risk. You, the lessee, will have to pay any difference between the vehicle's retail value at lease-end and the residual value (estimated wholesale value) of the lease agreement.

You have three options under a closed-end lease when it expires. You may:

  • Return the vehicle.
  • buy the vehicle (if the lease has a purchase option), or
  • lease a new car.

Cost Comparison

In the short term, 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.

In the medium term, the 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.

In the long term, the cost of leasing is always more than the cost of financing, assuming the buyer keeps their vehicle after the loan ends. 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.

To conclude, buying and driving one 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.

Have questions for the Go Auto team? We are happy to answer your questions and get the best solution for you. 

Have questions?

We are happy to answer your questions and get the best solution for you.

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