Does Financing Make More Sense than Leasing a New Car?

There are a number of ways to get behind the steering wheel of a new vehicle. Car buyers may opt to go through the traditional direction of purchasing their next car and financing almost the entire buying price. Alternatively, they may opt to lease a new vehicle and pay a small percentage of its buying price. Vehicle sellers are more than happy to help find multiple ways for buyers to get into new vehicles.

A while ago car leasing was reserved for customers and businesses wanting luxury vehicles. Today, it has become common in all vehicle classes, from luxury SUVs to pickups and subcompact cars. This guide will attempt to answer some of the questions asked about whether financing makes more sense than leasing a new car.

Answer: Leasing Makes Short Term Sense, but Financing is Often Better Long Term

Leasing refers to a way of financing where the buyer does not pay for the entire buying price. When a client leases a new car, he or she is liable for the devaluation that ensues during the lease term and any interest and associated fees. Oftentimes, the buyer pays an amount during signing; the remaining balance is cleared in a series of periodical lease payments. Even though the concept seems simple, leasing a vehicle can be a very complicated transaction with numerous vocabularies and a confusing array of numbers. The amount paid for leasing a car is the variance of the residual value from the capitalized cost plus any interest accrued and several other fees such as vehicle registration costs and lease origination. Vehicle dealerships will, in most cases, refer to the total down payment amount as drive off costs. Most commonly, lease periods last for two to three years, even though it is possible to negotiate agreements with different terms.

When a car buyer purchases a new car, he or she covers the entire price of the automotive using financing, cash, the trade-in value, or a combination of the three. For example, if a buyer purchases a 30,000 dollar SUV, he will have to cover the whole expense. Covering that cost normally involves an auto loan, a down payment, and a trade-in. Once a client buys and finances a car, the lender takes the vehicle title until such a time when the buyer will have cleared the credit financing. Buying a car involves getting credit funding from lenders like credit unions, a bank, or a finance company. The buyer will pay the down payment amount of the credit and the interest accrued in a series of periodical loan payments. The duration of a car loan is referred to as its term. Loan terms vary from one year to eight years. The best way to get affordable financing requires one to request for a loan before the car shopping begins and before visiting a car dealer. Banks and other lenders will review the borrower’s credit rating and a number of factors such as your monthly rent and income.

Additional Resources

The above guide is a brief highlight of whether financing makes more sense than leasing a new car. There are numerous resources around the internet that can assist people. Below are some recommended resources.

  1. Investopedia - Investopedia assists its users to understand complicated financial concepts, improve their investing skills, and better manage their finances. Regardless of whether you are in a living room, a boardroom, or a classroom, the website and its network of financial experts work overtime to deliver quality and accurate information since 1999.
  2. Credit Karma - This website focuses on the many uses that people put their credit to. It can help people understand credit ratings and build their credit. The article linked focuses on purchasing motor vehicles vs. the option of leasing them using credit. 
  3. US News - This website provides information on a broad array of different subjects and has been known to be the go to source for many people. Their car knowledge in particular is excellent. This article focuses on helping determine whether leasing or financing a vehicle is a better choice. 

Questions to Consider