Understanding the Differences between Financing and Leasing a Car
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With a vehicle purchase being such a significant investment, you'll want to explore all of your financial options before signing the papers.
Figuring out your budget and which makes and models you can afford is a serious consideration. Then there's deciding what optional equipment you want or need in addition to the standard features. And do you want to purchase an extended warranty or service plan for the reassurance they provide?
After deciding all of those things, it's time to figure out how you'll pay for your next car, either through financing or leasing. Each alternative has positives and negatives that may better suit you, depending on your needs as a driver and your financial situation.
Let's take a detailed look at leasing versus buying or financing to help you choose which route is suitable for you.
Leasing versus buying explained
When you determine whether leasing versus buying is the right solution for your vehicle purchase, it's essential to know the critical areas in which they differ.
Car leasing is similar to paying rent on an apartment or house. You can drive the vehicle of your choice while making lower payments than financing the total purchase price. Just like renting real estate, leasing is a temporary arrangement where you never gain equity or ownership. Lease contracts typically run from 24 to 48 months, and at the end of the agreement, you return the vehicle to the seller or purchase it for a previously determined price.
But leases come with various restrictions related to miles driven, modifications performed, and wear and tear that could cost you money down the road. However, with today's new vehicles averaging around $40,000, leasing allows drivers to afford vehicles they might not be able to purchase.
On the other hand, car buying gives you full ownership of the vehicle and additional freedom to do as you please in terms of miles driven and how you care for it. Most buyers take out an auto loan and finance over 36 to 84 months, letting them gradually pay their obligation over time. Though buyers pay an interest rate on car loans, they slowly build equity with each subsequent payment and keep the vehicle at the end of the loan term.
When you’re in the market for a quality used car like a Toyota Camry or Toyota Corolla, you’ll probably need financing. Shift works with a network of trusted lenders who compete for your business, ensuring you get the best rate.
Leasing a car: benefits and drawbacks
If you've zeroed in on a particular vehicle but it's a bit outside of your price range, leasing may be the better option for you. But keep in mind certain restrictions apply when leasing a car, so you'll have to weigh them before making a decision.
First and foremost, leasing a car usually lowers your monthly payments, easing the financial burden of getting behind the wheel of the vehicle you want.
And when you lease, it's typically for a brand-new vehicle, so you're getting not only the latest features and technology, a warranty also covers you.
If you're someone who likes a new car every few years, leasing could also appeal to you, as you keep turning in your old vehicle and getting behind the wheel of a new one.
But leasing comes with several caveats that need your attention, should you decide to go that route.
When you lease, you'll have to return the car after a set period. If you're looking to keep a vehicle for the long term, leasing isn't the option for you.
Since you don't own a car when you're leasing, you can only drive a set number of miles per year. Mileage limit choices are usually for 10,000, 12,000, or 15,000 miles per year. If you exceed the agreed-upon amount, you'll owe an overage charge at the end of the lease term.
If you're someone who likes to tailor your car with various customizations, leases usually don't allow for that. So if you'd like to add on some unique wheels and tires or a performance exhaust system, it probably isn't allowed in your lease.
You'll also have to pay attention to keeping the vehicle in excellent shape throughout the lease period. For instance, if you drive a Ford Escape and venture off road, any excessive wear and tear beyond what the seller deems acceptable could lead to extra expenses when you turn it in.
Or if you don’t used the recommended grade of fuel, leading to engine damage, you’ll be responsible for repairs.
Buying a car: benefits and drawbacks
Though buying a vehicle typically costs more, it comes with several benefits worth considering.
If you've focused on a specific car and know you'll want to keep it longer-term, say more than five years, buying is the best option. Though the monthly payments are higher than a lease, you're continually building equity in your purchase and are the rightful owner when you buy.
Once the term of your loan ends, the vehicle's all yours, free and clear, and you no longer have to make payments every month. So though monthly costs when buying tend to be higher than leases, you won't have to make any at all one day.
The next benefit of buying a car is freedom. When you buy a vehicle, you're free to drive it as many miles as you like, perform any modifications you choose, and maintain it however suits you. Unlike a lease, you never have to return the car to the seller, and you're not responsible for additional charges relating to miles driven or wear and tear.
You can buy any of Shift's cars directly online from the comfort of your home, knowing it has no hidden issues because all Shift vehicles pass a 150-point inspection and get a fair, up-front price from the get-go. For extra reassurance, any car you buy from Shift has a seven-day refund policy. In case you aren't fully satisfied with your purchase, you're able to return it with no questions asked. These are just some ways Shift makes it easy to buy a car regardless of its location.
2013 Nissan Rogue S (from $11,950)
Leasing versus buying in summary
Choosing whether to buy or lease a vehicle comes down to several factors, with each option having its pluses and minuses. If you know that you'll want to keep a car for the long term and like the extra freedom of ownership, buying is the way to go. But if you like keeping your monthly payments low and don't mind a few restrictions, leasing might be the better option.
When you're on the hunt for a used car, finding an example in excellent condition is an important consideration. At Shift, certified mechanics perform 150-point inspections on every vehicle sold, and you get a free Carfax report, so you know you're getting a quality car.
Shift takes the hassle out of applying for financing with their free, no obligation applications. And most Shift customers receive an offer within minutes, saving you time.
2021 Toyota Camry XLE (from $33,500)
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April 15, 2022
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