Financing And Leasing A Car: The Differences Explained

Key Takeaways:

• Car financing involves taking a loan from a dealership, your bank, or a personal loan towards the purchase of a car.
• There are pros and cons to both leasing and financing a car. Ultimately, your best option depends on your individual needs and circumstances.
• If you want to own your car outright and don't mind higher monthly payments, then financing may be the option for you.
• If you want to drive around in the newest car model every few years and don't mind making monthly payments, then leasing may be a good option.

Are you in the market for a new car but unsure whether financing or leasing is the best option? Don't worry; you're not alone. In this post, we'll break down the differences between financing and leasing a car so that you can decide the best option for you. We'll also provide important tips on getting the best deal on a vehicle. So, if you're considering buying/leasing a new car, read on for all the information you need!

What is Car Financing?

Car financing is when you take out a loan to help pay for your vehicle. You'll usually make monthly payments on the loan, and the car is yours once it's paid off. One of the benefits of financing a car is that you'll own it outright, so you can do what you want with it. For example, you can sell it or trade it in whenever you like. You might also find that car loans have lower interest rates than other types of loans, such as personal loans.

Ways to Finance a Car

Dealerships usually work with banks or other lenders to provide car financing for their customers. This can be a good option if you're buying a new car and the dealer offers competitive rates. However, comparing rates and terms from multiple lenders is important before you commit to anything.

Another option is to finance through your bank or credit union. This can be a good option if you have good credit and can get a competitive interest rate. However, comparing rates and terms from multiple lenders is important before making a decision.

If you have good credit, you may be able to get a personal loan from an online lender. This option is viable if you need money quickly and don't want to go through the hassle of going through a bank or dealership. Again, it’s crucial to compare terms from different lenders.

What is Car Leasing?

With car leasing, you're essentially renting the car for a set period. You'll need to return the vehicle to the dealership at the end of your lease. A great benefit of leasing is that you might be able to get lower monthly payments than if you were financing a car. However, there are some drawbacks to leasing. For example, you'll likely have to pay a fine if you exceed your mileage limit or damage the car. Also, you won't have any equity in the car and won't own the car at the end of the lease.

Ways to Lease Your Car

There are a few different ways that you can lease a car. The most common type of leasing is through a dealership. You can also lease a car directly from the manufacturer or a third-party lender.

A popular way to lease a car is through a dealership. When you lease through a dealership, you'll work with the salesperson to find the vehicle you want and then negotiate the terms of your lease. You'll likely have to put down a security deposit and make monthly payments for the duration of your lease. You will return the car to the dealership at the end of your lease.

You can also lease a car directly from the manufacturer. The process is similar to leasing through a dealership, but you'll be working with a representative from the car company instead. The advantage of leasing directly from the manufacturer is that you may get better terms or discounts on your lease.

Another option for leasing a car is through a third-party lender. This type of lender offers leases to customers who might not qualify for one through a dealership or manufacturer. The terms of these leases can vary, so it's important to read the fine print before signing anything.

When considering financing or leasing a car, it's important to understand the difference between the two options. Car financing allows you to build equity in the car. At the same time, leasing gives you the flexibility to upgrade to a new car every few years. Both options have pros & cons, so it's crucial to think about what's best for your individual needs.

Car Leasing vs. Financing: Pros and Cons

Monthly Payments

When you lease a car, your monthly rentals are usually lower than when you finance the car. You’re not paying to purchase the vehicle, so your monthly outgoings are lower. Whereas in the case of financing, since you are slowly buying the car, your monthly installment is generally higher than that in leasing.

Down payment

In the case of a car lease, you have to pay only a small percentage of the vehicle's total value as a down payment, also called a security deposit. This amount is refundable at the end of your contract period. You can get it back or use it towards your next lease. However, in the case of car financing, you have to pay a larger down payment, which is generally 20% of the value of the vehicle.

Maintenance and repair costs

When you lease a car, the owner, i.e., the leasing company, is responsible for all maintenance and repair costs. The manufacturer’s warranty will generally cover it during the lease term. So, if there is any problem with the car, you can take it back to the dealership, and they will fix it without any charges. But when you finance a car, you are responsible for all maintenance and repair costs after the manufacturer’s warranty expires.

Early termination

If you want to terminate your lease agreement before the end of the lease term, you will have to pay a hefty early termination fee. But with financing, you don't have to pay any fees if you want to sell or trade-in your car.

Mileage restrictions

A car lease generally includes a mileage restriction of 10,000 – 15,000 miles per year. If you exceed this mileage limit, you will have to pay a mileage penalty fee. But when you finance a car, there is no such mileage restriction, and you can drive as much as you want.

Ownership

You will have to return the car to the dealership at the end of a lease term. But if you finance a car, you will own it outright – sell it, trade it in, or keep it.

The Bottom Line

Leasing is best for people who like to drive new cars every few years and don’t mind making monthly payments indefinitely. Car financing is best for people who want to own their car long-term and don’t mind taking on the responsibility of repairs & maintenance.

So, which is better for you – financing or leasing? It all depends on your needs & preferences. If you’re unsure, talk to a financial advisor to get more information about each option.

Here’s a helpful article on how to negotiate a car lease.

Supreme Toyota of Hammond, serving Albany, LA, is your one-stop car dealership to lease or finance your next vehicle! Take a few minutes to fill out our online finance application. We'll review your information and let you know if you qualify for a new auto loan or used car financing. Once pre-approved, you can shop for new Toyota vehicles with the peace of mind that comes with knowing your financing is already taken care of.

Apply for financing now and get behind the wheel of the Toyota you've always wanted.