Finance versus Lease

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by Gursh Nijjar

Buying a car is one of the largest personal purchases we can make. Unless you have a stash of cash lying around (which is actually the best and safest way to pay), your options are to either finance or lease your next car.

Financing means that you pay towards owning your vehicle one day, similar to a house mortgage. Leasing is like renting your car for a pre-arranged period of time, after which time you have an option to buy it for the lump sum you have left over at the end of your lease period. There has always been some confusion about the difference between these two options so let’s break it down and see which one is best for you.

LEASING
Pro’s
After your lease period expires, you can simply give it back without any headaches and lease another vehicle, contiuously driving a new car.
Warranty is included to cover major repairs over the term of the lease should your vehicle break down. Service packages can be included in this if you negotiate it.
No taxes are paid upfront on the purchase price.

Con’s
Mileage is restricted and penalties are imposed for overuse with some wear and tear clauses – meaning you pay for over usage and excessive over-use of the vehicle.
A car is an asset, but you don’t actually outright own it, the dealership does.
Although appealing, it can work out to be more costly in a short term of lease over the longer term of financing.

FINANCING
Pro’s
Eventual outright ownership of vehicle, meaning you are building an asset.
No mileage restrictions and you are able to customize your vehicle how you want it.
You can spread out your payments to fit into your budget with many options such as monthly, bi-weekly, semi-weekly or even weekly payments.

Con’s
Can often lead to big repair bills as cost of ownership over a longer period of time means vehicle maintenance includes vehicle not changed often enough to keep bills to a minimum.
Have to keep your vehicle for between 5-7 years to reap the benefits of financing over leasing.
Can feel suffocated having to pay instalments over a longer period of time – not able to see the light at the end of the tunnel.

DEPRECIATION
We have all heard of the saying, “you lose thousands of dollars when you drive a vehicle off of a car lot.” This is true especially with new vehicles. Depreciation simply means loss of value over time. Lease companies take into consideration the depreciation and basically charge the customer the cost of depreciation together with the cost of wear and tear to calculate your monthly payment. In financing, you pay for the entire vehicle and have take the full cost of depreciation as a loss from day one, hoping to possibly recoup the loss in the future once the vehicle is paid off if you decide to sell it or trade it in.

All of these basic factors will determine which option is right for you and your lifestyle and budget.