If you’re thinking of owning a car in Ontario, there are two viable options you can explore. You can either lease or finance a car. You also need to understand what obligations and costs you will bear when selecting one of the options.
This guide outlines the differences between leasing and financing vehicles.
Major Differences between Financing and Leasing a Car
There are significant differences when it comes to leasing or financing a car. They include:
When leasing a car, you don’t have sole ownership over the vehicle. Depending on the agreement, you must pay a certain amount of money for a stipulated period. Once the period expires, you have the option of either buying the vehicle or returning it.
On the other hand, when financing your car, you have full ownership of your vehicle. You get the liberty of customizing your vehicle and adding modifications to suit your preference.
With both options, you have to make initial payments before driving your car away. The difference comes in the varied forms of payment you will make.
When leasing, you have to make the first month’s payment, refundable security deposit, taxes, registration fees, and other fees. But, when you finance your vehicle, you have to pay the total amount or a down payment followed by monthly installments. Financing also includes registration fees and taxes.
When financing your vehicle, you can get a long-term loan. With a long-term loan, you can reduce the amount of money you pay for monthly installments. But, you will end up paying more due to interest and possible negative equity on your vehicle.
When leasing a car, your monthly installments will be lower since you’ll only be paying for the vehicle’s depreciation during the period of use. The installments will also include fees, taxes, and rent charges.
But, when financing a vehicle, loan payments are higher than leasing since you buy the car and pay for its total value.
A lease commitment differs from a financing commitment when seeking early termination. If you want to opt out of paying your lease early, you will have to pay early termination fees. But, in most cases, these fees are like retaining the car for the remaining period.
Whereas when financing, you can sell your car and use the money to pay off the remaining loan.
With the leasing option, you have to return the vehicle once the stipulated period expires. If you want to keep the car still, you can ask for an extension on your lease.
But, when financing, the vehicle is your responsibility. You can decide whether to sell it or keep it. When choosing between two or more car models, you can use the Canadian Black Book’s Future Value calculator for estimations on the depreciation value of the models.
When leasing a car, you don’t get any equity value; hence, the vehicle’s depreciation value will not impact you. But, when financing a car, you have equity. This means as the car depreciates, you have to decide whether to keep it or trade it in.
If you lease a car, you have no sole ownership over it. Thus, you can’t make modifications or any alterations. But, if you must, you have to remove the changes and return the car to its original state.
When financing your car, you own it, and you can make as many changes as you prefer. But, you should note that the modifications will affect the resale value.
Wear and Tear
With a lease, you will have to worry about the wear and tear the car incurs. Leasing companies may request penalty fees to fix the damage.
When financing, your main concern will be the vehicle’s resale value. When opting for either of these options, it is essential to consider the distance you will cover in a year.
If you need a car for short drives, then leasing is appropriate. But, if you live far away from Toronto, rural areas, or suburbs, it’s advisable to avoid driving penalties by taking out a loan.
In avoiding wear and tear, lease agreements need you to provide an annual limit over the distance you will drive. Going above this limit will attract extra charges.
Whereas with a financing option, you can cover as much distance as you want with the knowledge that it will affect the vehicle’s resale value.
When deciding whether to lease or finance your car, it is best to consider your long-term intentions. But, if you prefer short-term use of a vehicle, then leasing is an ideal option.
On the other hand, car financing is a suitable option if you own a car and want to use it until it depreciates.