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Lease or Finance a New Vehicle?

  Brad McNeill

Buying a vehicle is a fairly straightforward process. You borrow money from a lending institution and pay the monthly payments until the loan is paid off. As you make payments, you gain equity in the vehicle until it’s eventually all yours. You can keep the vehicle as long as you like and do whatever you want to it, from installing aftermarket accessories to a new paint job.

Since you are actually paying back the whole amount (unless you put a down payment), a finance payment is higher than leasing. Leasing can be very appealing because of its lower payments. Once you have enjoyed the vehicle for its term, you drop it back off at the dealer and walk away or lease another. You are always covered under warranty and driving the latest model. This definitely makes leasing appealing to consumers.

As attractive as leasing seems…there are some big downfalls:

  • If there is damage to the vehicle other than normal wear and tear you are required to fix it, this includes scratches, dents and dings (if the interior is covered in coffee stains or smells like a dog, you will be charged for cleaning fees)
  • If you drive over the allotted amount of kilometers, you will be charged a very expensive fee for every additional one
  • If you need to get out of a lease before it expires for some reason, you will be stuck with early termination fees and penalties that may cost thousands (this could very well equal the amount of the lease for its entire term)
  • You are not able to customize your vehicle
  • You do not own the vehicle

Financing has it’s downfalls as well.

  • Loans often have higher monthly payments
  • You can’t just drop the keys when you are done with it (you will have to deal with selling the vehicle or trading it in – and possibly for a lower value than you have paid to date)
  • You don’t have to worry about the wear and tear but it will lower the value of the vehicle
  • Depending on the vehicle you buy, the depreciation of the vehicle may drop faster then what you still owe if you decide to sell it and pay off the loan

With all of this in mind, it really does depend on what you would be using the vehicle for. If you are just going to use it to go to work locally and the grocery store in town, leasing might be the better option. If you travel great distances for work or have messy kids, financing is the better choice. Do your research and find out what option is better suited for you.

It may be that buying a used vehicle is the better option, as it does have its advantages. One of them being that the vehicle will have already taken a major hit in depreciation! Just be sure you ask for the Car Proof history report. Working at ISB, I have seen how valuable this report can be for the consumer and for insurance companies.

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