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Posted at Wed, Oct 19, 2022 10:30 AM

Key Takeaways:

  • With financing, you’ll own the car outright and make monthly payments toward the loan amount.
  • With leasing, you’re essentially renting the car for a set period and mileage limit.
  • At the end of the lease, you can choose to buy the car or return it to the dealership.
  • Financing typically has higher monthly payments.
  • When you finance a car, you’re responsible for its maintenance and repairs. With a lease, the dealership typically covers these costs.

Deciding to buy a car is all fun and games until the question of “how to pay for it” pops up. People resort to all kinds of methods, from taking out their savings or opting for bank loans. The two most popular options for purchasing a car are leasing and financing. We have compiled this guide to help you understand the differences between them.

Differences Between Car Financing and Leasing

Let’s weigh the differences between leasing a car or auto financing based on a few key parameters:

1. Ownership:

Car Lease:

Although the idea of owning your vehicle is deeply ingrained in our minds, leasing a car is not about ownership. When you lease a vehicle, it’s like renting it from the dealership for a predetermined period.

As your lease agreement ends, you will have to return the vehicle to the dealership unless you have decided to buy it.

Car Financing:

Unlike with a lease, financing your vehicle entitles you to ownership of the car at the end of your loan period. You can sell or trade your car or keep it as long as you want.

2. Mileage:

Car Lease:

The mileage limits make it somewhat impractical to lease a car if you drive much. Exceeding the boundary means you must pay for every mile surpassing it. Usually, the leasing company has a limit of 15,000 to 20,000 miles per year, but it can vary based on your agreement, manufacturer, or dealership.

Car Financing:

Because you’re the vehicle’s legal owner, there are essentially no limits on how much you can drive your vehicle. Plan all the road trips you want or need without worrying about being charged for every mile. The lack of hesitancy when you opt for a car loan makes it the best choice for many car shoppers.

3. Maintenance and Repairs:

Car Lease:

Scratching the bumper is not your worry anymore because guess what? You’re not the owner of the car. Most lease agreements cover normal wear and tear on the vehicle, but you may have to pay for any significant damages when you turn in the lease. So be careful when you parallel park.

Car Financing:

You are the new proud owner of the car, which means all maintenance and repairs are now your responsibility. However, car owners make this hassle less burdensome by buying an insurance policy that covers repairs.

4. Installments:

Car Lease:

Generally, lease payments are lower than car loan payments. When you lease a car, you only pay for the vehicle’s depreciation plus interest, taxes, and fees during the lease term. Where the financial ramifications may be a little high with leasing, you’re still paying less every month.

Car Financing:

Amortization of the car loan plus interest, taxes, and fees make up your monthly car loan payment. You’re paying off the purchasing price of the vehicle plus interest and other fees, so the costs are generally higher. Also, remember that your monthly car payment could be higher if you choose a shorter loan term with a lower down payment.

5. Modifications and Add-Ons:

Car Lease:

To sadly remind you once again that the lack of ownership on a lease makes it harder to personalize your car. You could be penalized for making any modifications to the vehicle, no matter how small. Look carefully at the agreement for what is allowed and what isn’t.

Car Financing:

You’re the car’s owner, so you can do what you want! Add those spinny hubcaps, and paint it neon green… just be mindful that these changes could affect the resale value. Some dealerships even offer customizations as part of the financing deal.

6. Resale Value:

Car Lease:

Lease terms are normally two to four years. By the end of your lease, the car may not be worth as much money as what is still owed on the lease. This is called being “upside down” on a lease. You may have to pay a large sum of money at the end of the lease when returning the car, which is called a “disposition fee.”

Car Financing:

Since you own the car, you can sell it or trade it in whenever you want! However, the depreciation cost is a drawback you have to deal with. Because regardless of the price you bought your car with, you can only sell it according to its current market price, which in most cases has depreciated.

7. Taxes:

Car Lease:

When leasing a car, you’re only taxed on the portion of the car’s value that you use during the lease.

Car Financing:

Where you get various tax benefits on a good credit score, you also have to pay taxes on the car’s total value when you finance it.

8. Duration of the Agreement

Car Lease:

There’s no definite lease term as they come with varying periods. It all depends on your preferences whether you want a more extended lease agreement, for example, for four years or a relatively short one, such as a year.

Car Financing:

Car loans follow the same course of action where you have to pay a lump sum and then fulfill the remaining amount in a specific tenure, mostly three to five years.

The Final Say:

If you ask us, we would say lease a car only if you change cars frequently or have a less-than-stellar credit score. Your personal preference is all that matters. But, if you’re looking to keep the car for a more extended period, we suggest you finance it.

When it comes to your auto financing needs, Lee Nissan of Panama City, serving Upper Grand Lagoon, FL, can definitely help you. In the buy vs. lease war, we remain unbiased and look to serve our customers in the best way possible.

Learn all your financing options or apply today.

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