Buying a car with an auto loan is a simple process; you borrow money from a lender or a financial institution and pay off the loan in the form of monthly payments, of course, with interest. When you pay off the loan, the car is all yours and you can modify it or use it as you please. However, over the past few years, leasing has become a very appealing option.
The idea of leasing a car is similar to that of a long-term rental. When you lease a car, you sign an agreement with the leasing company allowing you to use a car, but with a fixed monthly fee and usage limit. Your freedom to use a leased car is subject to certain terms and conditions. If you exceed the number of fixed kilometers agreed upon, you’ll pay extra charges and penalties.
Are you unable to decide whether you should lease a car or sign up for a car financing program? If yes, you’re not alone. Most people who aren’t aware of the benefits and drawbacks of leasing face this situation when buying a new or used car in Canada. Here are some advantages and disadvantages of car leasing in Canada:
Leasing seems like a good choice on the surface. The monthly payments are lower than what you will pay in case of financing. In addition to finance charges, you just pay the amount that the car depreciates in the time you use it. Leasing a car is a good idea if:
- You like to change your vehicle regularly or if you get bored with cars quickly. Leasing allows you to drive the newest models without buying them.
- You can’t afford to buy your dream car.
- You don’t want to be worried about the car’s trade-in value or selling a car.
- You don’t travel a lot. People who don’t drive a lot can easily manage the allotted number of kilometers that the lease allows.
No matter how appealing the idea of leasing a car may appear, there are some drawbacks and limitations; for example:
- You can end up paying more than what you would have paid in case of buying. Vehicles are rapidly depreciating assets and leasing has a lot to do with the depreciation costs.
- If you keep switching cars one after another, your monthly payments will go on forever. The advantage of car financing, on the other hand, is that you get value after paying off your loan. It’s cost-effective to buy a car and keep it until it completely expires.
- If you’re not good at maintaining your car, leasing is probably a bad idea because you may have to pay for the wear and tear when you end your contract.
- If you decide to end the lease before it expires, you may end up paying thousands of dollars in penalties and early termination fees. You can’t customize or configure a leased car.
Make a cost-benefit analysis before leasing a car. If you’re not sure what’s good for you, buying or leasing, drop us an email at email@example.com. If you think car financing is the right option for you, you can apply right now for an affordable car loan.