Key Takeaways:
- If you’re looking to get a new car but aren’t sure whether to lease or finance, it all comes down to what kind of car owner you are.
- Leasing is probably the better option if you like to have the latest models and don’t mind giving your car back at the end of the lease.
- On the other hand, financing is probably the better route if you like to keep your car for a long time and enjoy customizing it.
- Ultimately, it’s all about what works best for your individual needs and preferences.
Regarding car buying, there are two main options: leasing or financing. So which one is right for you? It depends on your situation and the kind of automobile owner you are. Here at Mike Patton Honda, we want to help you make the best decision for your unique situation. This blog post by our experts will help you learn more about each option and determine which is best for you.
Car Leasing:
A car lease enables you to “rent” an automobile from a dealership for a set period and kilometers. Leasing a car is similar to renting an apartment. Typically, you lease a vehicle from a dealer who offers you the use of the automobile in exchange for regular lease payments. If your lease contract contains a buyout clause, you may keep the car rather than hand it back to the dealer after the term.
Car Financing:
Car financing is a loan that you take out from a financial institution to purchase an automobile. Once you have paid the entire loan, the car belongs to you outright. Car loans are typically offered for four years or longer, although shorter-term loans may be available. The interest rate on your automobile loan will depend on several factors, including your credit score.
Major Differences:
Ownership:
Leasing: Since you are not the owner when you lease a Honda or any other car, you cannot build any equity. After the lease, you must either return the car or buy it.
Financing: However, when you finance a car, you own the vehicle once you have paid the loan in full. You can sell it, trade it in or keep it as long as you’d like.
Monthly Payments:
Leasing: Lease payments are typically lower than loan payments because you are only responsible for paying the car’s depreciation and any rent, use taxes, and fees.
Financing: Typically, monthly loan installments are higher. You have to pay the car’s total price, plus interest, sales tax, and any other charges related to the loan.
Up-Front Costs/Drive-Off Charges:
Leasing: When you lease or rent a car, you will have to pay an initial monthly payment, a refundable security deposit (which may or may not be waived by some lenders), capitalized cost reduction (down payment), and any other expenses like taxes, registration, and dealer handling fees. This is typically referred to as your “drive-off” charges.
Depending on the car’s value, leasing up-front payments may be cheaper or greater than financing charges.
Financing: If you finance a car, you will have to pay the cash price of the vehicle or a down payment, as well as other expenses like taxes, registration, and dealer handling fees.
You may also be required to pay for an extended warranty, gap insurance, or other add-ons.
Mileage Restriction:
Leasing: You are prohibited from exceeding the specified annual mileage cap, often 12,000 or 15,000 miles, under the conditions of a car lease. You can owe a penalty at the lease’s end depending on how many extra kilometers you drove than was agreed upon. Dealer and lender-specific overage fees might vary, but you can anticipate paying $0.15/mile. However, you can plan and add more distance.
Financing: When you purchase a car, the loan company won’t charge you extra fees if you drive as many miles as you like. Based on the mileage on the odometer, the market value will be correctly adjusted when you trade in your car.
Maintenance Costs:
Leasing: Under the terms of a lease, you are only responsible for routine maintenance and oil changes. Significant repairs such as tires or a new engine would not be your financial responsibility.
Financing: You are in charge of paying for all maintenance and repairs not covered by the vehicle’s warranty when you purchase or finance a car. These expenses will rise over time, especially once the warranty on your car expires.
Warranty Coverage:
Leasing: The manufacturer’s full warranty is offered on every leased vehicle.
A 3-year/36,000-mile limited warranty, a 5-year/60,000-mile powertrain warranty, and other coverages are included with Honda automobiles. Ask your Honda dealer for information on the mode warranty.
Financing: The full warranty offered by the manufacturer applies to all new cars. A vehicle warranty may not apply if you finance a used automobile. Ask your dealer if extended vehicle service contracts are available to extend coverage.
Resale Value & Depreciation:
Leasing: When the lease ends, you return the car to the dealer. Because you’re only accountable for a portion of the vehicle’s depreciation, there’s no need to worry about its resale value.
Financing: If you finance a car, you own it outright and can sell it or trade it in whenever you want. But because you’re responsible for the entire depreciation of the vehicle, its resale value is a key factor in whether you’ll end up “upside down” on your loan (i.e., owing more than the car is worth).
So Should You Finance or Lease a Car?
It all comes down to what kind of car owner you are. Leasing can be smart if you prefer to drive a new automobile every few years and don’t mind making monthly payments. Financing, however, can be the best option if you like to own your cars and doesn’t mind shouldering some additional risk in exchange for the potential for lower monthly payments. Of course, there’s no right or wrong answer – it depends on your preferences.
At Mike Patton Honda serving La Grange, GA, our finance department is committed to exceeding your expectations during your time with our dealership. Our helpful finance managers guarantee that our customers receive the best loan program at affordable rates.
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