By Anthony Santiago - Editor-in-Chief

May 11, 2023

I have experienced both the good and the bad regarding financing versus leasing, so I have first-hand knowledge of the topic. 

There are tons of websites that discuss the debate on which is better: financing vs. leasing.

I will share my thoughts as a buyer and when it might make sense to choose one. 

I prefer to finance vehicles since I keep them longer. But I have leased vehicles as well in the past. Read on to find out what is better: Buying a Car or Leasing.

However, leasing might be a better fit for you if you are in a group where you often change cars. 

When you're looking for a car, you must choose between financing and leasing. I'll cover the basics of both and the important things to consider with each. 

Yes, there is a difference between dealer financing and leasing. One is focused on a long-term perspective, and the other is more short-term. The team at BCB has created a comparison table for your convenience. 

Financing means incrementally paying off your vehicle plus added interest until full ownership, while leasing entails temporary rental with an option to buy or return at lease-end. (essentially a rental)

Comparison Table of Financing and Leasing





You own the vehicle

You don't own but are renting

Monthly Payments

Pay until paid off and higher monthly payments

Lower monthly payments and shorter terms





No restrictions

Limited & Fees Apply

Main Disadvantage

Higher payments

No equity in vehicle

The first thing to consider is your budget or future budget constraints. If you are on a fixed budget, leasing might be a good option since the vehicle's monthly rate will be lower, and the car is under warranty. 

Although leasing appears cost-effective monthly-wise, various fees can incur if you have excessive damage or excessive miles beyond the terms of your lease agreement. 

You are also locked in as well with your lease. You can transfer your lease, but that takes time. Be sure you fully understand the lease terms, or you might end up regretting it later on.

Regarding financing, there are many advantages and little downsides

First, it offers you true ownership. If you ever needed to sell the car, you would be able to do so at any time. Compared to leasing, you are locked into lease payments for 24, 36, or 48 months.  

Not only that, but it also provides potential equity-building opportunities along with lower long-term costs. Again, this is my recommended approach to purchasing a vehicle based on my experience.

Let's dive deeper into the long-term advantages of financing.

Advantages of Financing a Vehicle

Lower Long-term Costs

Financing a vehicle has many benefits that help save money in the long run. For example, you are able to include any maintenance packages at the time of purchase, which allows you to spread the total cost over the monthly payments. 

Depreciation does play a part when purchasing, but if you plan to keep your vehicle longer than 5 years, the financial advantages will compound. In fact, many of today's vehicles can easily last 100k miles or more. 

Lower Interest Rates

Lower interest rates are one great advantage of financing. Many dealerships have special low-interest rate promotions that allow you to borrow at a fraction of the average APRs on auto loans. This can reduce your monthly payments and maximize your money. 

You can sometimes find zero percent financing as well. 

In addition, you have the option to choose the best payment term duration as well. 

Improve Your Credit Score History

Moreover, auto loans through financing contribute to an improved credit score by reflecting steady repayment of debts, which makes future borrowing easier. 

Yes, you will be taking on more debt, but your payment history will demonstrate your ability to pay on time. 

Car and Driver report that "Once you start making loan payments, your credit score should rebound. And by keeping up with your monthly loan payments, your credit score should increase in the long run."

Equity in the Vehicle

As you pay for the vehicle, you will be racing against the dreaded depreciation. However, long term, the value of the vehicle will bottom out. 

Financial experts say that the 4-6 year mark is a perfect time to consider trading in or selling since data shows that 40% of the purchase price will remain. 

To calculate your vehicle's depreciation, you can check out the depreciation calculator from Progressive here.

Furthermore, built-up equity can also act as collateral for future loans or as an emergency fund for unexpected expenses. However, financial responsibility is key when deciding on this method of acquiring a vehicle. 

Why You Might Consider Leasing

Are you considering leasing a vehicle? 

It's a great option for those who want the benefits of driving a new car without the high upfront costs. Plus, you get to switch things up every few years. This is typically a choice for fresh grads, young professionals, and seniors. 

Non-car enthusiasts would also choose the leasing route. This is because leasing typically has many restrictions on customization and modifications with a vehicle. 

Lower Monthly Payments

The main advantage of leasing is lower monthly payments. Financially, these only cover the car's depreciation during the lease term, so there's no need to pay outright or take loans. 

Leasing also gives drivers peace of mind with fixed costs and no major repairs or maintenance. Sometimes, the lease promotions have no down payment required or minimum due at signing, which is great for those on a strict budget. 

Leasing and EVs

The leasing I would consider would be for the following circumstances:

  1. For a business expense
  2. New EV model or brand

As of 2023, the car market has been up and down, but people still need to drive. I tend to lean on financing a car, but leasing would be a consideration if I were able to write off the lease as a business expense. 

Secondly, if the lease was for a new EV model with technology that is fairly new, with EVs, Tesla's track record would be great, and I would consider buying that EV brand. However, the final decision will depend on the monthly lease payments vs. financing.

While owning may be cheaper in the long run for longer leases, leasing is still an affordable option.

Lease: Drive a New Vehicle Every Few Years

Another good reason to consider leasing is that it allows you to always have the latest tech and design. You can upgrade to a newer model with no need to worry about reselling or trading in an older car. 

Leases work great for drivers who want the latest model on the road. There might be good leasing options as well for these new models, as getting them on the road will help increase their visibility to the public. 

Financing Options: Choosing the Right Plan

Dealership Financing

Dealership Financing is a popular choice for many car buyers. I usually go this route with my car purchases if am not able to pay full in cash. 

Dealer financing is definitely a more convenient way to buy and finance a car in one place.

This loan is easier to get because the dealership acts as the middleman between the buyer and the lender and wants to make the sale to move their inventory. This is good if you have a bad or a low credit score. 

  • Interest rates may be more competitive than other loans.
  • Dealers often work with buyers of all credit types, though better terms may come with a higher score. People with bad credit may be able to qualify but will experience higher interest rates.
  • Extras like extended warranties and maintenance plans may be free as an incentive.

Lenders can offer different interest rates depending on your creditworthiness and repayment term preferences which usually last from 36-72 months; however, longer terms often lead to lower monthly payments but higher overall expenses due to increasing accumulated interests throughout such payment arrangements. 

Leasing Options: What to Consider

To consider the best leasing options for your needs, you must understand the benefits and drawbacks of different lease agreements. 

A friend of mine who loves to lease joked with me, "Why buy the cow when you can lease the milk?"

For those who prefer variety over-commitment, leasing offers an excellent opportunity for upgrading vehicles every few years – without breaking the bank! 

You won't have to deal with reselling or trading in older vehicles while enjoying access to cutting-edge designs and technology at lower monthly payments than buying outright. 

And yes, even luxury cars could be within reach! Warranty coverage also makes maintenance worries less hassle during the lease period. But remember – mileage restrictions or wear and tear costs may be involved, so do your research beforehand! 

When choosing financing options for your next vehicle purchase, go for one that steals your heart (not your wallet). 

Lease Terms

Data shows that the average lease is 36 months, and the longest lease for a vehicle is 60 months. Depending on your needs and how you intend to drive will determine the best number of months for your lease. 

You may plan to move or change jobs which will impact your commuting, income, and expenses.

These are important factors to consider since you will be locked in for 3 years. 

Mileage Restrictions

Leasing Considerations: Mileage Terms

However, before jumping into any leasing deal, it's important to understand all the conditions that come with it – including those pesky mileage restrictions. 

Most leases are structured, so drivers are limited to 10,000 and 15,000 miles annually. If you exceed this limit, be prepared for some significant fees at the end of your lease term. 

I experienced this when we leased a Nissan Maxima. While the vehicle was great, we did incur excessive mileage and opted to buy out the car. The excessive miles would have been over $2,000 to pay to the dealership. 

To avoid this scenario (and save some cash in the process), consider low mileage options if they exist – especially if you don't typically drive very much. 

Again, if you don't drive much, you can select lower miles at a lower monthly rate. You can select miles as low as 5,000 miles per year. 

Before signing any lease agreement, though, take some time to carefully consider your driving habits and lifestyle so that you can choose the right mileage term for your needs. And when it comes time to return your leased vehicle? Let's say there's always a bit of uncertainty involved! 

End-of-lease Options

If your lease is almost over, you can carefully weigh all available end-of-lease options! Here are some alternatives worth considering:

  • Purchase the car outright. (I did this)
  • Trade in for a new lease or buy a new/used car.
  • Extend the current lease. (rare)
  • Terminate the lease earlier (watch out for fees/penalties).

Buying out the car would be a smart choice if you enjoy the car and have taken very good care of it during your lease. 

Final Thoughts: What the Future Holds for You

While nobody has a crystal ball to predict the future, taking stock of your present financial situation and your outlook on the future will help you decide on financing or leasing a vehicle

Today, the trend is leaning toward leases as an alternative to traditional financing due to their convenience and affordability.

However, it's important to remember that car leases are still a long-term commitment! 

At the same time, leasing can be attractive because of the lower monthly payments and the headache-free driving experience. 

Nevertheless, consider that leasing can have potential drawbacks, such as hidden fees and limited allowable miles, which may increase costs over time.

I would finance or pay cash, but leasing does have its advantages in specific situations.

Frequently Asked Questions

1. What is financing?

Financing is the process of borrowing money from a bank or financial institution as an auto loan to purchase a vehicle. You will be required to pay it back over the life of the loan with interest.

2. What is leasing?

Leasing is the process of renting a vehicle for 24 - 60 months, which requires paying monthly installments over the life of the lease contract. You have the option to return the vehicle or buy it after your lease is up. 

3. What are the advantages of financing?

Financing allows you to own the product outright at the end of the payment term, build equity in the vehicle and avoid tax if you trade in for another vehicle.

4. What are the advantages of leasing?

Leasing allows you to have lower monthly payments and access to the latest and greatest features in the newest model. 

5. Which option is better for me, financing or leasing?

The best option depends on your individual financial situation and your specific needs. Financing may be better if you plan to keep the vehicle for longer than 5 years. Leasing may be better if you are able to write it off as a business expense or have a fixed monthly budget and like to drive a new car every few years.

6. Can I negotiate financing or leasing terms?

Yes, you can negotiate financing or leasing terms with the lender or dealer, such as the interest rate, monthly payment amount, down payment, and length of the loan or lease term.

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Anthony Santiago - Editor-in-Chief

About the author

I am a passionate car enthusiast who likes to help people save money and avoid headaches when it comes to cars. I believe that everyone can find the right car at the right price. I share my tips and experience so you can learn quickly and maximize your next SUV, truck or car purchase.

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