Leasing vs. Financing: Which Is Better?

Jun 20, 2023

Leasing vs. Financing: Which Is Better?

When it comes time to buy a new car, there are two main options: leasing and financing. Both have their own advantages and disadvantages, so it's important to weigh your options carefully before making a decision.

In this blog post, we'll take a closer look at leasing and financing, and we'll discuss why leasing may be the better option for some people.

What is Leasing?

When you lease a car, you're essentially renting it for a set period of time. You'll make monthly payments, and at the end of the lease term, you'll have the option to return the car, buy it, or lease a new one.

Leasing is a good option for people who want to drive a new car every few years. It's also a good option for people who don't want to be responsible for the long-term maintenance and repair costs of a car.

What is Financing?

When you finance a car, you're borrowing money from a lender to buy it. You'll make monthly payments on the loan, and at the end of the loan term, you'll own the car outright.

Financing is a good option for people who want to own their car outright. It's also a good option for people who want to make customizations or modifications to their car.

Why Leasing May Be Better Than Financing

There are several reasons why leasing may be a better option than financing for some people.

  • Lower monthly payments: Monthly lease payments are typically lower than monthly car loan payments. This is because you're only paying for the depreciation of the car, not the entire purchase price.
  • No down payment: Many leasing programs don't require a down payment. This can save you a significant amount of money upfront.
  • Lower interest rates: The interest rates on car loans are typically higher than the interest rates on leases. This is because leasing is considered to be a less risky loan for lenders.
  • No long-term commitment: When you lease a car, you're only committing to it for a set period of time. This can be a good option if you're not sure how long you'll need a car.

Of course, leasing isn't the right option for everyone. There are some disadvantages to leasing, such as:

  • Higher up-front costs: There are often lease-related fees that you'll have to pay upfront, such as a security deposit and DMV fees.
  • Mileage restrictions: Most leases have mileage restrictions. If you exceed the mileage limit, you'll be charged for each additional mile.
  • No equity: At the end of a lease, you won't have any equity in the car. This means that you won't be able to sell the car or trade it in for a down payment on a new car.

Conclusion

Leasing and financing are both viable options for buying a new car. The best option for you will depend on your individual needs and preferences. If you're looking for lower monthly payments and no long-term commitment, leasing may be a good option for you. However, if you want to own your car outright or make customizations to it, financing may be a better option.

Here are some additional factors to consider when making your decision:

  • Your budget: How much can you afford to spend on a car each month?
  • Your driving habits: How many miles do you drive each year?
  • Your long-term plans: Do you plan to keep your car for a long time, or do you want to upgrade every few years?

Once you've considered all of these factors, you'll be able to decide whether leasing or financing is the right option for you.

FAQ’s

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solutions they’ve shared with customers.

Yes you can do a no money down lease.

  • 1. Negotiating power: imotors have negotiated favorable terms with the car manufacturers or financing companies that allow them to offer low lease rates.
  • 2. Volume discounts: By leasing a large number of vehicles, imotors is able to secure volume discounts that translate into lower lease rates for their customers.
  • 3. Low overhead costs: imotors has lower overhead costs than traditional brick-and-mortar dealerships, such as lower rent, utilities, and staffing costs, which could allow them to pass those savings on to customers.
  • 4. Marketing promotions: imotors runs marketing promotions that temporarily lower their lease rates in order to attract customers and boost sales.

As you probably already know, lease contracts are not designed to be easily or inexpensively terminated before the normal end date. However, you do have a number of options available to you that could minimize your costs and headaches. Unfortunately, an adequate discussion of these options would be too lengthy to present here. A full discussion of all your lease termination options, including how to choose the right option for you, is contained in our article, Exit Your Lease Early.

It depends. If your current car is paid for, you can certainly use it as a trade-in. Just be sure you know its fair trade-in value, and that the dealer gives you full credit when your lease payments are calculated. If you still owe on your car, you will want to get the “payoff” from your finance company and compare that amount to the trade-in value of the car. If the trade-in value is higher, you have “trade equity.” If not, you’re “upside down” and you may want to reconsider. You know, too, that you would do better financially if you sold your car yourself.

Sales tax laws can be quite different between states and localities. Most states simply apply the local sales tax rate to each monthly lease payment. A few states want all sales tax paid up front, based on the value of the vehicle or the sum of all monthly payments.

Yes, but it’s a little different than for a loan. You always pay a finance fee, called money factor, on a car lease just as you pay a finance fee, called interest, on a car loan. Money factor is expressed as a very small number such as .00175 but can be converted to APR interest rate by multiplying by 2400. For example, a lease money factor of .00175 is equivalent to 4.2% APR interest rate. You pay finance fees on a car lease because leasing is a form of financing and the finance company wants to be paid for the use of their money. Leasing is not renting. The lease finance company uses their money to buy a vehicle from a dealer and leases it to you. By leasing, you essentially borrow the finance company’s money that was used to buy the car.