Leasing vs. Financing: Which Saves You More?

Although shopping for a new car is an exciting prospect, it’s important to decide whether to finance or lease your new vehicle. Our team at Kalispell Toyota has compiled this comprehensive guide to help you understand the implications of each option. Learn the key differences between leasing vs. financing to make the right decision for your next vehicle.

Understanding the Basics: Leasing vs. Financing a Vehicle

In basic terms, vehicle leasing is like renting a car for a fixed term, after which you return it. Financing is when you take out an auto loan and repay it over a set time. When you’ve made all the payments, you own the vehicle outright. Both leasing and financing have pros and cons, and the right choice for you depends on your financial circumstances, driving habits, and whether driving a new car every few years is preferable to owning a vehicle.

The Ins and Outs of Car Financing

Financing a car purchase is the most popular option since it offers more freedom and helps you build equity in the vehicle.

How Car Financing Works

Financing your car purchase is a straightforward process. You borrow money from a bank, a credit union, or through a car dealership. At Kalispell Toyota, the experts in our finance department work with the manufacturer and a network of local lenders to secure the best loan terms for you.

For an agreed period, you make monthly repayments until the loan is paid off. A portion of each payment goes toward paying the interest on the loan, and the rest toward the loan principal. By making a bigger down payment and choosing a longer loan term, you can reduce the monthly payments, but you’ll be in debt for longer.

Benefits of Financing a Car

From day one, you can treat the car as your own. You can drive as many miles as you want, make modifications, and add accessories. While you should look after your investment, you don’t need to be concerned about excessive wear and tear or damage to the vehicle. As you make the repayments, you’re building equity in the car until, at the end of the loan term, you have an asset that you can keep, sell, or trade. With financing, you can terminate the agreement early, and if you sell the car, use the money to pay off the loan.

Drawbacks of Financing

Financing a car generally requires a bigger down payment and higher monthly payments than leasing since the loan is for the entire value of the car, not just a portion of it. If you choose a longer-term loan, you may find yourself in an upside-down situation where, as the vehicle depreciates, you owe more than the car is worth. If the car is stolen or totaled, the insurance value may be less than you owe. At the end of any complimentary maintenance term and when the warranty expires, you’re responsible for scheduled servicing and unexpected repairs at your own cost.

Tips for Successful Financing

To get the best financing terms, you need to negotiate with the dealership. Whether it’s on the car’s price or the interest rate, there’s usually room for negotiation. If you have a high credit score, you’re generally offered more favorable terms and have more bargaining power. If your credit rating is poor, it’s advisable to take steps to improve it before applying for a loan. Don’t overstretch your budget. Choose a finance plan with monthly payments that you can comfortably afford.

Leasing a Car: What You Need To Know

Before considering leasing a vehicle, it’s important to understand what the lease involves. Once you sign up, you’re tied in for a fixed period.

How Car Leasing Works

Car leasing is just like renting a vehicle. You drive a new car for a fixed period, typically 3 years, after which you return it to the dealership. You can then walk away, buy the car for its residual value, or lease another new vehicle.

Advantages of Leasing a Vehicle

Leasing generally involves lower upfront costs and monthly payments because you’re only paying the difference between the vehicle price when new and its expected value at the end of the lease. You have the car for its most trouble-free years while it’s covered by the manufacturer’s warranty. You may be able to drive a higher-spec car than you can afford to buy.

Disadvantages of Leasing

Lease vehicles come with mileage restrictions. If you exceed the limit, you have to pay for each additional mile. You have to keep the car in good condition, and if you return it damaged or with excess wear and tear, you’ll be charged substantial fees. If you end the lease prematurely, the early termination penalties and fees can amount to thousands of dollars. You can’t modify or customize the car, and it must be returned as it was when new. At the end of the lease, you don’t own the vehicle.

Leasing vs. Financing: Which Is Right for You?

When deciding whether to lease or finance your new car, you need to weigh up several factors. How you use your vehicle and your financial circumstances can make a difference. If you drive various distances every day and frequently head out on road trips, the mileage limits on a lease car will likely be too restrictive for you.

If your annual mileage is predictable or if you don’t want to worry about maintenance costs and want to drive a new car every few years, leasing may be your best option. Back-to-back leasing will cost thousands of dollars more than financing a new vehicle.

Whichever option you choose, we’ve got your maintenance covered. Every new Toyota lease or purchase comes with ToyotaCare, which covers factory-scheduled maintenance for two years or 25,000 miles, whichever comes first. You also get two years of 24-hour roadside assistance.

Find Unbeatable Leasing and Financing Deals in Kalispell

At Kalispell Toyota, we have an extensive inventory of cars to lease or buy. Our finance team is here to help you decide which option is best for you. If you’re in Kalispell, Montana, contact us today with any questions you have about leasing vs. financing your new car.