Should You Lease or Finance Your Next Vehicle?

When the time comes to find a new vehicle, you have two main options. Unless you have a hefty amount of cash to purchase something outright, most shoppers will either lease or finance their next car. 

So, which one is right for you? Both have distinct advantages, and there’s no one-size-fits-all answer. If you’re in the market for a car in Columbia, Dentsville, Blythewood, or anywhere else in Central South Carolina, this quick guide will help you decide. 

Lease vs. Finance: The Basics 

Before we get into the advantages of both options, let’s quickly explain the basics: 

What is Leasing a Car? 

A lease is basically a long-term rental. After you sign the paperwork, you drive the car for a certain term—usually around 36 months—then, after the term is up, you return the car to the dealership. After that, you can either sign another lease or choose to finance. The main downside of this arrangement is that you never earn equity and never own the vehicle, unless you have a lease buyout option (we’ll get to that in a moment). 

Lease payments are usually lower than if you’d financed the same vehicle. This is because the payment is calculated based on the difference between the car’s original value and the residual value at the end of the lease. In other words, you’re not covering the full value of the car, just the expected depreciation over a few years. 

What is Financing a Car? 

When you finance a car, you receive a loan from a financial institution like a dealership, bank, or credit union. The loan pays the full value of the car, then you pay the loan back, plus interest. The term is generally anywhere from 4 to 7 years. After your loan is paid off, you receive the title and you own the car, free and clear. 

Finance payments depend on a few factors, including the interest rate and loan term. You can secure a lower monthly payment by spreading them out over a longer term, but this increases the risk of going upside down, which means you owe more than the car is worth. On the other hand, choose too short of a term, and it can break your monthly budget with higher payments, so it’s important to consider this carefully and discuss your best option with a finance professional. 

Advantages of Leasing a Car in Belton, MO 

• Lower monthly payments: Because payments aren’t being made on the full value of the car, they’re almost always lower than it would be to finance the same vehicle, and this can make it much easier to fit into your budget. 

• Smaller upfront cost: Down payments for leases are typically lower, and in some cases, you may not need to make a down payment at all. 

• Enjoy the latest technology: Dealerships typically only lease new vehicles, which means you’ll be driving a fresh ride with all the most current creature comforts. 

• Spring for a nicer trim: A lower monthly payment means you may be able to afford to lease a higher-end model than if you financed, which means you can check out upgraded infotainment systems, nicer amenities, premium upholstery, and much more. 

• Guaranteed warranty coverage: Since you’re driving a new car, and since you’ll end up returning it long before the warranty is over, you’ll be able to enjoy full factory warranty coverage for the entire time you drive the vehicle. 

• Low service costs: Driving a car during its most problem-free years means you most likely won’t have to deal with issues, and long-term wear items like tires likely won’t need to be replaced. Additionally, the manufacturer may have a service program that pays for some routine maintenance like oil changes. 

• Tax benefits for your business: If you lease a vehicle for business purposes, you may be able to write off a significant amount of the costs. 

• Lease buyout option: At the end of your lease term, you may have the option to finance a loan for the residual value that was agreed upon at the beginning of the lease. This can be massively beneficial if the car retains its value better than expected. It’s important to ask about this at the beginning of the lease, because not all lease agreements provide this option. 

Advantages of Financing a Car in Belton, MO 

• Ownership potential: While it may take several years, if you keep making payments, you will eventually own the car. This can save you a ton of money in the long run because it can allow you to drive payment-free for years as long as the car is well maintained. 

• Flexible terms: Depending on your credit, you may be able to choose the length of your loan term, which can allow you to get a much lower monthly payment. You can also save on interest by paying your loan off early if your budget permits. However, as we mentioned, it’s crucial to be careful and weigh all your options when deciding what length of loan to sign up for. 

• Available warranty coverage: When you finance a new car, you’ll be able to take advantage of the full manufacturer’s warranty. You can also finance a Certified Pre-Owned Vehicle, which often comes with additional warranty coverage. 

• No mileage or condition restrictions: When you lease, there are strict requirements about how many miles you can drive, and you must keep the car in reasonably good condition. When you finance a car, there are no such restrictions. 

• Sell anytime you want: Leasing a car often means you’re locked in until the end, and if you want to return it early, you may face early termination fees. Financing a car means you can sell or trade at any time, as long as you don’t owe more than the car is worth. 

• Modify however you want: Lease agreements also have rules against making any permanent modifications to a vehicle, but financing allows you to do whatever you want, which is essential if you plan on lifting the suspension, installing aftermarket equipment, or making any other significant upgrades. 

• Pre-owned cars available: Financing permits you to shop for used and Certified Pre-Owned vehicles, which greatly increases your options. Pre-owned vehicles also tend to be more affordable overall, which makes them an excellent investment if you find the right one. 

Frequently Asked Questions 

What are the downsides of leasing a car? 

The main downside of leasing is the fact that you don’t earn equity, and you won’t own the vehicle in the end, which means you can end up stuck in a situation where you’re perpetually making payments. Leasing can also include some unforeseen costs, especially if you return the car in less-than-perfect condition. There are strict mileage limits that you have to abide by as well, and if you go over them, you’ll incur another upcharge. 

What are the downsides of financing a car? 

Higher monthly payments and a higher down payment are the main drawbacks of financing vs. leasing. If you sign up for too long of an auto loan term, you can also end up with negative equity, which means you owe more than the car is worth, and you may not be able to sell it until you pay the loan amount down. 

What happens if I go over my lease mileage limit? 

Lease agreements have a set mileage limit, usually around 12,000 to 15,000 miles. If you go over, you’ll be charged a certain dollar amount per mile over the limit. So, if you’re charged 20 center per mile and you go 500 miles over, you’ll owe $100 at the end of the lease. 

Can leasing build my credit? 

Yes, leasing can build credit. As long as it’s reported to credit bureaus as an installment loan, and as long as you reliably make your monthly payments, it will increase your credit score just like an auto loan would. 

How is lease interest calculated? 

Lease interest rates are calculated using a number called the money factor, which is usually a small decimal. To calculate the interest rate, multiply the money factor by 2,400. For instance, if your money factor is 0.0020, it translates to an interest rate of 4.8%. 

Discover Your Auto Finance Options with Us 

Still not sure which is the best choice for your unique financial situation? Let the pros in our Finance Center guide you through the process. We can also help you find the perfect vehicle, whether it be a stylish Buick SUV or a rugged GMC truck. 

Contact us online or call (803) 462-4475 to get started today.