Buying a vehicle can be one of the largest purchases you can make. Aside from choosing the colour, make and model, you also have to decide how you’re going to pay for it. If you don’t have the cash on hand to buy the car in full, should you finance or lease? While there are supporters of both sides, each option has its pros and cons. Here are four things to consider when purchasing a new vehicle to ensure it fits within your financial plan.
1. Your monthly budget
If you choose to finance, your loan is for the full purchase price of the car (including any interest charged for borrowing the money). With a lease, instead of borrowing money for the full purchase price, you’re only borrowing for the vehicle’s depreciation during the lease term. As a result, your monthly payments will generally be much lower when leasing than financing.
However, if you continually lease you will always have a monthly payment; you’re essentially paying to rent the car each month. If you finance, each payment helps build equity. And once you’ve paid the car off it’s yours – which means no more monthly payments. So while leasing gives you a lower monthly payment, financing gives you an asset and no monthly payments down the road.
2. How often do you want a new car
One of the biggest appeals of leasing is the ability to always drive the newest model. Once your lease is up, you can turn in the keys and sign a new lease for the latest model – starting the process all over again. Since most warranties last three years – which is the same length as the average lease – you’re driving the car in the best years of its life with minimal maintenance costs. Plus there’s no hassle of trying to sell your car when you want a change.
Of course if you finance a car, you’re free to sell your car at any point and use that money to purchase a new one. While buying a vehicle does give you an asset, keep in mind it’s one that depreciates as soon as you leave the dealership.
The choice between financing and leasing really depends on your lifestyle, needs and priorities.
3. How hard you are on your car
Messy kids? Are you a magnet for scratches and dings on your car? Want to put a different exhaust on your fancy new sports car? You may want to consider buying. With leasing, anything above and beyond normal wear and tear could result in extra fees in order to be fixed or replaced.
To ensure you’re following the regular maintenance schedule on the vehicle, your lease agreement may also require you to get servicing done at the dealership. Regular maintenance is something you also want to consider if you plan on financing, not only for your safety but also any damage to the vehicle will impact its resale value.
4. How much you drive
When leasing, there’s often a maximum number of kilometres you can drive over the course of the lease. If you put on a high number of kilometres every year, you run the risk of going over your mileage allowance. And each kilometre you go over will cost you when it’s time to turn in the keys.
Ultimately the choice between financing and leasing really depends on your lifestyle, needs and priorities. No matter what you decide, just make sure you take the time to consider all your options beforehand.