Is It Better to Lease or to Finance?

The choice of whether to lease or finance a vehicle plays a major role in your selection and shopping experience. Both options have pros and cons, so there’s no one-size-fits-all answer to the question of whether it’s better to finance or lease. Our team at Eskridge Lexus in Oklahoma City has compiled an overview of what you need to know about your choices.

What’s the Process of Leasing a Vehicle?

When you lease a vehicle, you make monthly payments to essentially rent it for a period of time. Most lease agreements are 24 or 36 months long. During your lease, you’re subject to restrictions on the number of miles you can put on the car. If you exceed these limits, you’ll have to pay additional fees when the lease period ends.

Over the course of the lease, your payments typically equal the depreciation of the vehicle during that time. At the end of the lease, you can either return the vehicle to the lender or purchase it for a predetermined price specified in your lease contract.

What’s the Process of Financing a Vehicle?

When you finance a vehicle, you take out a loan to purchase it. You’ll build equity in the vehicle by making monthly payments. These payments include the interest charged on your loan, so you’ll ultimately pay more than the sale price of the car. When you’ve paid off the loan, that car is your private property. You’re free to drive and modify your financed vehicle in any way you’d like.

Leasing vs. Financing: What To Consider

There are several notable differences between leasing and financing a vehicle. Consider these key points as you’re deciding which approach is best for your needs.

Upfront Costs

The initial cost to lease a vehicle is lower since you’ll only have to make your first lease payment and a security deposit. When you finance a vehicle, you typically apply a down payment to your purchase. The larger your down payment, the better because you won’t have to pay interest on this amount.

Monthly Payments

The monthly payments for a lease are usually lower than those for a financed vehicle. However, many factors come into play regarding your monthly payments on a car loan. The initial price of the car, loan term, and interest rate all come into consideration. A leased vehicle is always brand new and has a premium price tag, even though you’re only paying for depreciation. If you compare a new lease to the loan payments for an older used car, the difference in your monthly payments will be smaller.

Vehicle Return

Though most lease contracts have a buyout option, this isn’t true in every case. This means that you may have to return your leased car even if you don’t want to. If you’re not planning to or able to purchase your leased vehicle, you’ll have to return it at the end of the lease term. At this time, you may lease another vehicle if you’d like. If you want to return your leased car early, you’ll likely be subject to fees or penalties.

When you finance a car, it’s yours as long as you make the monthly payments. When you’ve repaid the loan, you’ll own the car in its entirety and will never have to return it. If you want to get rid of your car early, you’re free to sell it as long as you can pay off the loan. You may be subject to a prepayment penalty depending on the terms of your contract. Both leased and financed vehicles can be repossessed if you fail to make your monthly payments on time.

Wear and Tear

Leased vehicles typically fall under the manufacturer’s new car warranty for the duration of the lease. This means that most maintenance and repairs will be covered, making it extremely affordable to care for a leased car. It’s crucial that you take good care of a leased car. Most lease agreements assess a penalty for wear and tear. This means that you’ll be charged for stained upholstery, scratched paint, and other damages. If you have pets or children, avoiding these fees can be very difficult.

You don’t have to worry about any penalties for wear and tear on a financed vehicle. If you finance a brand-new car, it will still be under the manufacturer’s warranty for the first few years. Some certified pre-owned vehicles come with warranty coverage as well. You’ll typically pay more for maintenance and repairs on a financed vehicle, but you’ll own this vehicle longer.

Mileage Limits

Leased vehicles come with mileage limits that typically average around 15,000 miles a year. If you go over your mileage limit, you can expect to pay 10 to 25 cents per additional mile. If you know that you’re likely to exceed the mileage limit, you can inquire about a high-mileage lease option with more generous terms.

Financed vehicles are not subject to any limits on mileage. So, while you may have to rent a vehicle for longer vacation drives if your daily driver is leased, you can feel free to keep using a financed family vehicle for all your trips at no extra cost.

Customization

You cannot customize a leased vehicle. If you do so and don’t return the vehicle in its factory state, you’ll have to pay significant fees at the end of the lease. If you want to make your car your own, financing is a much better option. There are no restrictions or rules for modifying a financed vehicle.

Find Your Next Vehicle

Whether you’re looking for lease specials or you’re interested in financing a vehicle at a great price, we can help. At Eskridge Lexus, we’re committed to helping you find the right vehicle for your needs. We offer new, pre-owned, L/Certified, and certified pre-owned cars in a wide range of models and trims. Contact us today, or come in for a visit and explore the lot for yourself. We look forward to helping you find your next vehicle.

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