Buying a new car is not only an exciting process, it can also be a stressful one. You are faced with multiple choices: should you choose between a compact model or a sedan, between a car with manual or automatic transmission, one with heated seats or additional airbags? The list goes on. Given that not everyone has the same liquidity, the question that seems to be the least obvious is how do we pay for the car: should it be financed or should it be leased?
Let’s look at both alternatives for a better option.
For the financing of a new car, full payment of the sale price is required. If you already own an old vehicle, you can, for example, exchange it for a monetary value that will be deducted from the sale price of the new car. After making a down payment, you will be able to finance the remaining amount with a loan and thus spread it out over a number of months or years that suits you. Once the loan is repaid, you will have full possession of the vehicle. The duration of car loans can vary from 1 to 8 years and you have the possibility to adapt the repayment according to your budget.
Renting a car is another option that allows you to drive a new vehicle by paying installments on its use time. Once the contract is over, you must return the rented car. You then have the option to sign a new lease agreement for a new car. It should be noted that there are certain conditions to rent a vehicle. For example, there is a limit on the number of kilometers you should drive in one year.
Mode of operation
If you are planning to buy a vehicle, depending on your financial situation, you can obtain a loan from a dealer or a bank. Generally, the longer the term, the lower your monthly payments and interest rates. However, it is important to note that the longer the term, the more expensive the vehicle will be at the end of the contract. It will be possible for you to make a double payment in order to repay the loan as soon as possible. Once the loan has been repaid, you will take full possession of your car.
Renting a car is an option that allows you to buy a new car for a specific period of time: usually up to 5 years. Before leasing a vehicle to you, the dealer calculates the total selling price of the vehicle and anticipates its residual value at the end of the contract. The amount of the lease will be the difference between the amount of the vehicle at the time of the lease and its predicted value after depreciation. The condition of the vehicle, the number of kilometers travelled, its parts, etc. are taken into consideration in the calculation of its residual value or its value after depreciation.
Advantages and Disadvantages
Financing or leasing a vehicle has advantages and disadvantages. When you buy a vehicle, you finance the entire cost and it becomes an asset. On the other hand, when you lease a vehicle, you only pay for the portion of the vehicle you use. Choosing the best option will depend largely on your personal preferences and financial situation.
Here are the advantages and disadvantages in detail to help you make a decision about financing or leasing a vehicle:
- When you finance a vehicle, its value becomes part of your net worth. However, keep in mind that the purchased vehicle is an asset that can lose 30% of its value just in the first year of its use.
- When you lease a vehicle, you have the option to drive a new vehicle every two or three years for a nominal monthly payment. In addition, a down payment may not be required. However, you won’t be able to sell the vehicle if you need the cash.
- Leasing requires lower monthly payments and is less expensive compared to financing. Keep in mind that there are fees associated with leasing other than the monthly payment. At the end of the contract, you will pay compensation for kilometers and excessive damage.
- When you finance a car, you also spend money from time to time on maintenance and repairs. However, with a lease, you may not need to pay for its maintenance.
Yes, you can purchase a leased vehicle at the end of its contract. Usually, the present value of your lease is communicated to you for early termination.
A leased vehicle is generally new and its manufacturer’s warranty is still valid.
When you lease a vehicle, it is your responsibility to adhere to the manufacturer’s recommendations. You are also responsible for repairing damage and replacing worn parts such as tires and brakes.
When you finance a vehicle, you make a down payment and pay all other applicable fees and taxes related to the purchase and delivery of the vehicle. This includes registration fees, title fees, license fees, etc.
At the signing of the lease agreement, you will pay your first monthly payment, your security deposit, your acquisition fee and any other additional charges.
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Disclaimer: The information in this article is provided for informational purposes only, should not be construed as legal advice on any matter and should not be relied upon as such. The author accepts no responsibility for any consequences of any kind arising from the use of this information.
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