02/07/2025
Financing VS Leasing
What works out for you better?
Financing is the most common way to buy a vehicle. Generally having a bank give you a loan for the full amount of the vehicle or a portion of the vehicle, typically on a 5-year term with a fixed interest rate. Term and Rates may vary depending on many factors.
Leasing is essentially paying for a portion of the vehicle to use for the next 1-3 years depending on what Term you choose with a mileage allowance of usually around 7,500 miles up to 12,000 miles a year. The leased vehicle can be bought out after your term is over or turned in.
I never knew the benefits of Leasing or Financing until I became a salesperson and experienced both sides of the story. Lets break it down.
Of course everyone has a unique situation when it comes down to what they want and ultimately that is the deciding factor. The average length of Car Ownership is around 6-8 years in the United States and that is the reason financing is a better option long-term. Financing is a great option to build your credit, afford a car without hefty upfront expenses, and have access to more options in vehicles.
The vast majority of people will rather finance. But what about leasing? What does leasing provide rather than financing? What can leasing do for you? Let's touch on that!
I have seen and dealt with so many different conversations when it comes down to it and have narrowed it down to a few points that might make leasing a better option for you. Lets take a look into many situations in the U.S. that are happening and see what leasing can do for you and the arguments that many people might have towards leasing.
1. Leasing is lame, you're essentially paying money for a car you don't own and are only allowed a certain amount of mileage per year. That's restricting and not ideal, right?
- False! Financing a car means you don't own it either until you PAY IT OFF. At the very least, if something happens to the car during your ownership, it is your responsibility to fix it if the factory warranty doesn't cover it, especially if it's a wear and tear item.
- Did you know that the average person drives anywhere from 7,500 miles to 15,000 miles a year? Leasing has options from 7,500 miles all the way up to 18,000 miles a year PLUS you can buy more miles if needed before your term is up. This is a huge benefit if you work from home and keep your miles low!
2. Would I be paying the same amount monthly for leasing?
- In today's economy, it is typically lower monthly payments. Payments can factor per transaction depending if you want to put any cash down at time of delivery. Leasing can benefit from giving you a lower monthly. FYI, $1,000 cash down for a lease lowers your payment a lot more than $1,000 cash down for financing!
3. Lower repair costs
- Because lease terms are so short, most repairs will be covered by the manufacturer’s bumper-to-bumper warranty. In some cases, the manufacturer will cover maintenance costs. When reviewing your lease agreement and warranty or maintenance agreements, be sure to understand what repairs and maintenance are covered to avoid unexpected vehicle service bills. FYI, Volkswagen leases are great because GAP insurance is included in our leasing and your basic maintenance is covered for 3 years! (VW Maintenance every 1yr/10,000miles)
Leasing can be your gateway to try out new cars without any long-term repercussions. I know plenty of people that typically keep a car for 2-4 years only and always finance into new ones and roll-over their negative equity. Keep in mind that if you keep cars forever till the wheels fall off, Financing will still probably be your preferred method.
Leasing can also be a great option to get out of your current vehicle and drown the negative equity. I know plenty of people who have been unlucky and are still financing a car that broke down on them or pay too much for something that they own. Does that sound familiar? If it does, then that means you know someone that has gone through that situation or maybe you have gone through that as well.
I had a 2011 Audi that I was paying $415 a month for, and that was INSANELY stupid on my part financially, granted I was never taught about leasing. It was a great car, but not $415 worthy. I bought it when I was at an all-time low and recently totaled my previous car due to a 45-mph collision with a Deer that got up and left unscathed. I was on a 60mo term with the Audi and I started work over here at Brookdale Volkswagen a few month after and learned the ins-and-outs of the Finance side. Because of a great lease deal, I was able to step out of my Audi into a new Volkswagen ID.4 for less than $400 a month! Take in mind that I was paying $415 a month for the Audi and had 4 years left and the Audi was only worth $8,000 trade-in value, that left me with a little less than $8000 worth of negative equity that I would roll over if I financed into something else. Now when I played with the numbers a bit with every incentive possible that I qualify for. I was able to drown my negative equity and get into a BRAND NEW vehicle for less. My new term is 3 years with a 10,000 mile allowance and that suits my everyday driving habits. It's a no-brainer to choose $375 a month for 3 years or $415 a month for 4 years on an older car. PLUS, I can turn it in early for a fee and get out of it if needed.
What you just read is just barely scraping the top layer of the Auto-Finance world and there is a lot more I would love to share. I want to better inform the people I know because as a Minority in the United States, we always feel we are handicapped financially. Let's be more aware and look at things with a fresh mind and a willingness to learn and absorb.
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