Should I Lease or Finance My New Car?

When it comes to deciding between leasing and financing a car, there is no right or wrong answer. Leasing implies lower monthly payments than financing while financing offers you the benefit of owning the vehicle right away.

Most people make this decision by considering their financial situation and the amount of time they usually drive their car.

What is Car Leasing?

Leasing is like renting a car over the long term, generally between 12 to 60 months. You typically have to pay a set amount for using the vehicle, which includes service and maintenance charges.

However, there are some restrictions associated with leasing, such as a mileage limit that can't be surpassed without extra charges. A leased car does not really belong to you outright, as you have to either return when the agreement ends or end up purchasing it.

What is Car Financing?

Financing is essentially buying a car by splitting up the payment. Instead of paying the full amount upfront, you make an agreement with the lender to make payments in monthly installments.

Cars can be expensive to buy and maintain, which is why a payment schedule is a more affordable option. As you become the owner of the vehicle, you can customize it and even sell it whenever you like.

Difference between Leasing and Financing

Deciding between leasing and financing a car be tough. Here are some important factors to consider:


Leasing a car does not imply owning it. You essentially pay to use the car for a specific period. When the lease agreement ends, you can either return the car or fully buy it. If you are someone who changes cars every couple of years or so, short-term leasing may be a viable option for you.

On the other hand, financing is like purchasing the car. You are the owner, allowing you to drive and customize it as much as you want.

Upfront Costs

One of the major benefits of leasing is that you do not have to make a considerable amount of down payment. In some states, sales tax can be included as a part of monthly lease payment, saving you from paying a lump sum.

The upfront payments associated with leasing generally include the initial month's payment, down payment, refundable security deposit, taxes, registration expenses, and other fees.

On the contrary, financing implies paying a higher upfront cost. However, you can be payment-free once the loan payments end. The upfront fees include down payment, taxes, registration expenses, and other fees.

Monthly Payments

Monthly payments associated with leasing are typically always lower than those for loan financing. Leasing only involves bearing the cost of depreciation of the car when you are leasing it, along with interest, taxes, rent expenses and other fees.

If you opt for financing, monthly payments would typically be higher as you would incur the whole value of the vehicle, along with interest, taxes, and other expenses linked to the loan.

Final Thoughts

Leasing and financing a car are both popular options for people who require a vehicle. Leasing is a better choice if you change cars often and cannot afford high monthly payments. If you drive only a few miles every day, you can even negotiate a more affordable mileage lease.

On the other hand, if you drive long distances and intend to eventually keep the car, then financing is a more viable option. Once the monthly payments end, you can finally be payment-free.

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