BUYING VS. LEASING A CAR

WHAT IS LEASING?

A lease agreement is a contract with a dealership in which you agree to make monthly payments in exchange for the use of a car for a certain period of time, similar to a long-term renting. The typical lease duration is 36 or 48 months. You might be able to purchase the automobile at the conclusion of the lease period, but if not, you'll have to return it to acquire a newer model. Your lease contract will spell out the terms.

WHAT IS FINANCING?

When you finance a car, you are essentially taking out a loan to pay for it. One of the most significant distinctions between purchasing and leasing a car is that when you buy a car, you own it outright after the loan is paid off. A dealership or a financial institution can help you finance your loan.

THE PROS & CONS OF BUYING VS. LEASING A CAR

Monthly Payments

Leasing: Because you are not creating equity, leasing a car may result in reduced monthly payments. This may allow you to purchase a more expensive automobile that you might not otherwise afford. Cancellation costs may apply if you terminate your contract early.

Buying: It is more expensive up front, but your payments develop equity in the item, allowing you to swap it in or resell it. The sooner you pay it off, the more cash you'll have to spend on other things. Depending on how the car depreciates, longer finance terms may not be advantageous.

New or Yours?

Leasing:?You will be able to get a new car every few years with the newest technology and features. There is less flexibility for customizing the vehicle; your contract may prevent you from making changes to maintain the dealer’s resale opportunity.

Buying:?From the outset, you will have the freedom to personalize your car however you’d like. Eventually you will own your vehicle and you won’t have to deal with the expenses of an aging vehicle and depreciating value of a trade-in.

Warranty

Leasing:?Newer vehicles are covered by manufacturer warrantees for 3-4 years. With any unforeseen repairs, it’s great to know that it should be covered by the warranty. Regular maintenance such as brakes, oil changes, etc. are your responsibility.

Buying:?A purchased new vehicle will still come with a manufacturer warranty, and you can often opt to extend the warranty. As the vehicle ages and your warranty expires, you may have to pay for costly repairs down the road.

Resale

Leasing: You don’t have to worry about reselling the vehicle and going through the haggling process with an auto dealer or private buyer. On the other hand, your leased vehicle will not have any trade-in value.

Buying:?With equity in the vehicle, you can resell or trade it in at any point. As the seller, you have more control over the price you get for it.

Long-term

Leasing:?If you continue to lease, it will cost more in the long run. As long as you lease, you will always have a car payment, which may not be financially ideal for some. You may have the option to purchase the vehicle after the leasing term is complete.

Buying:?Financing to own a vehicle will eliminate your car payment at some point, freeing up your finances to save for a new vehicle or meet other financial goals.

WHEN TO LEASE A CAR

Here are some situations where leasing may be right for you.

• You are a?business owner?and want to deduct leasing costs on your taxes
• You want to save on maintenance costs
• You like the idea of brand new models and luxury features
• You can afford the payments and don’t care about the trade-in value
• Your driving habits fit within the lease kilometre limits

WHEN TO BUY A CAR

These are a few situations where you should consider purchasing a vehicle:

• You are a commuter who will exceed the kilometre limit on a lease
• You want to free up cashflow to meet other financial goals
• You want to build up equity in an asset for trade-in/resale value
• You are happy to use the same vehicle for a longer time frame

DOES BUYING VS. LEASING A CAR AFFECT CAR INSURANCE?

Generally, there is little to no effect on your insurance whether you are buying vs. leasing a car. The only significant difference is when you lease the vehicle the leasing company will be listed on your policy since it technically owns the car. Since you are required to protect their interest, you will likely have to purchase collision and comprehensive insurance for the vehicle. Collision and comprehensive coverages are smart to get on any new car anyway. Without it, you're on the hook for any damage to it that occurs due to a collision or if it is vandalized or stolen.