Deciding between buying or leasing a new or pre-owned vehicle in Calgary can be a confusing decision. Buying a new or used car means paying for the entire cost of the vehicle, while choosing to lease means you only pay for a portion of the vehicle’s cost, which covers the part you use during the time that you drive it. To help you make an informed decision, our team at Okotoks Chevrolet Buick GMC have provided a helpful guide. For any additional assistance, our finance department is always on hand to answer any questions that you might have, so don’t hesitate to give us a call or contact Okotoks Chevrolet Buick GMC online today!
Understanding Vehicle Financing
Financing a car means borrowing money to purchase a vehicle through a car or auto loan. This enables you to spread out the cost of a new car over several years, and interest on car loans is typically calculated using simple interest, meaning it will accumulate over time like compound interest.
On average, a car loan lasts about 68 months, though 72-month loans are becoming more and more common. During this period, you are expected to make monthly loan payments, including both the principal amount and added interest. Most auto loans are amortized, which means that your early payments will primarily consist of interest rather than principal payments.
Your monthly payments when financing a vehicle will typically be higher than lease payments, since they cover the entire cost of the vehicle plus interest. Once you’ve reached the end of the loan term, however, you’ll own the car in full with no more required payments. In addition, you’ll also be able to build equity, and properly maintaining your vehicle can positively affect its residual value, a huge plus for future trade-ins or sales.
Understanding Vehicle Leasing
When you lease a vehicle, you are essentially renting it for a set period, usually between 2-4 years, during which time you’re expected to make monthly payments. This gives you the flexibility to upgrade to a new model every few years without paying the full purchase price.
When considering a lease, there are a few terms to keep in mind:
• Lease term refers to the length of the lease agreement between you and the dealership.
• Down payments are the initial amount that is due upfront when starting a lease. Opting for a larger down payment can help to reduce your subsequent monthly payments.
• Your security deposit is a refundable fee that you pay at the start of the lease to protect the leasing company against any potential vehicular damage or missed payments. This deposit is refunded if the vehicle is in good condition and the lease terms are met.
• Your recurring monthly payment is determined by factors such as the vehicle’s price, the duration of the lease, and the mileage limits outlined in your lease contract.
• The projected value of your vehicle at the end of the lease term is referred to as residual value. A higher residual value often leads to lower monthly payments, since you’re paying for depreciation rather than the full vehicle price.
Comparing Monthly Costs
While leasing is typically the more affordable option upfront – allowing you to drive a new car every few years – it doesn’t allow you to build equity on the vehicle, and you must return it at the end of the lease term unless you decide to buy it.
Financing a car, on the other hand, results in higher monthly payments, but once the loan is paid off you are free to keep, modify, or sell the vehicle as you see fit. If you plan to own the vehicle in the long-term, buying can be the more cost-effective option, especially if you’re aiming to keep it after the loan term ends.
To ensure you’re getting the best value out of your car, use our payment calculator to estimate your potential monthly payments and get a clear picture of your budget.
End-of-Term and Early Termination
Many customers who finance their vehicles choose to buy them outright once the loan is paid off, as it offers clear ownership. For those leasing, there are several available options at the end of the lease term:
- Returning the vehicle
- Purchasing the vehicle
- Leasing a new vehicle
If you choose to return the vehicle, be prepared to pay for any end-of-lease charges, including fees for excess wear, tear, or mileage. The buyout price is usually outlined in the lease agreement if you choose to buy the leased vehicle.
Terminating a lease early typically requires advanced notice, and doing so might result in significant penalties, ranging from a fixed fee to the full remaining lease balance. Failure to pay these penalties can result in them being sent to collections, which can damage your credit score for up to 7 years.
Visit Okotoks GM Today
The choice between financing or leasing a vehicle doesn’t have to be a tough one. At Okotoks GM, our experienced sales advisors are always happy to help you find the best option to fit your budget and lifestyle. Head to our location at 101 Northgate Drive or contact us online to learn more!