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Is It Better To Finance Or Lease A Car

Owning a car is usually a dream come true for most individuals, yet it’s one of the top expenses you will incur. There are several options to consider if you are looking to borrow to get your next car. You can either use car finance or lease. Factors such as money, your taste and lifestyle, financial obligations, and responsibilities are all considerations before you settle on a car deal.Financing a car allows you to take out a loan to buy the car. On the other hand, when leasing, you make payments that grant you an opportunity to use the vehicle for a specific period. Whether you choose to lease or finance the car, there are financial implications. Leasing may be less expensive in the short-term, while buying is much cheaper in the long run. Before you lease or finance your car, always check your finances to make sure you can cover the monthly expenses.

Financing A Car

Saving up the total amount to buy a car can be a daunting experience. If you are in this situation, you can choose between two financing options; dealership financing and direct lending.

Direct Lending

This option is one of the most common methods used for financing a car. You can borrow from your bank, or any other financial institution. Before committing to this, you should understand the credit terms, i.e., annual interest, term length, and total amount to be paid back. It’s best to do due diligence by shopping around to compare credit terms offered by financiers before choosing one.

Dealership Financing

In case you can’t afford a bank loan, you can have a financing agreement with your dealer. Under this contract, you agree on the terms of payment, the period, and the finance charge. This type of financing can be beneficial as it provides incentives for the buyer. Your dealer can offer special programs which are limited to certain cars or have shorter contract time.

Pros of Financing a Car

What’s the difference between financing vs. leasing a car? Let’s find out.

Car Ownership

Despite making monthly payments on the car loan, financing a car is better because you own the vehicle in the long run. After fully paying off your loan, you'll have the option to keep it, trade it in or even sell. Compared to a car lease, you will have full ownership.


Because you own the car, you can alter and customise it to your liking. There are no limits or extra charges if you decide to add any additional features and accessories to the car.

No Mileage Limit

When you go for a leased car, there is a cap to the number of miles you can drive. However, with your own vehicle, you have the flexibility to go as far as you want without extra charges. You don't incur any wear and tear charges either, if you take a loan.

Cons of Financing a Car

Higher Payments

When deciding between a leased or financed car, you have to keep in mind that the monthly payments are higher with a loan. This drawback is because you are paying for the total value of the vehicle.

Extra Costs

With both car finance and lease, the car will encounter mechanical issues and wear and tear. However, if you own the vehicle via financing, all the extra costs and expenses are on you, once the warranty expires. If you have excess wear and tear, this might significantly affect your resale value.

Leasing a Car

This option allows you to rent a car from a dealer for a certain period. After this period elapses, you can either return the vehicle or purchase it. Your dealer should include these details in the lease contract before you get the car. Do you go for car financing or lease? Let’s take a look at the pros and cons of leasing.

Pros of Leasing a Car

Lower Monthly Payments

If you opt for a leased car, your monthly payments will be much lower than a loan. You can even choose to go for a more high-end vehicle than you could afford to buy. Besides, little or no downpayment is required for the car.

Fewer Repair Expenses

As long as you are within the warranty period, you don't have to worry about the repair bill. Warranties can cover up to three years which covers repairs. This clause protects you from unnecessary expenses.

Car Options

If you like driving the latest car model each year, car leasing vs. financing should not be a such a difficult choice for you. You can lease a new car every few years, and enjoy the latest technology, safety, and comfort features. Once your lease period elapses, you simply return the vehicle and get a new one.

No Resale Issues

Since you don't own the car, you don't have to worry about the resale hassle. With a lease, you only need to return the vehicle to the dealership and get a new model.

Better Financing Terms

With leasing, there are less strict regulations especially, with regards to your credit score. Once you default your payments, they repossess the car.

Cons of Leasing a Car

Mileage Limit

Compared to financing a car that you fully own, there is a mileage limit on leased vehicles. If you exceed the limits on the contract, you incur more costs.

Car Return

Leasing a car is just like renting an apartment. After the set period, you have to return the vehicle to the dealership. You may incur extra costs such as for extra mileage or unacceptable wear and tear. You only make monthly payments which of course don't give you any ownership once the lease expires.


Deciding on car finance or lease has a crucial financial implication. Choosing to take one of these options depends significantly on your long-term plans. If you are more into driving new cars every few years, the short-term plan to lease is the best option for you. However, if you intend to purchase a vehicle that you can use in the long term until a resale or upgrade, it's best to look at financing options such as loans.

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