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What Is Better For Canadians- Leasing A Car Or Buying It?

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Lease a car or finance it? It is a financial decision that affects your real savings. Do you think car leasing can save you dollars? Let’s understand from a Canadian perspective.

Lease or buy a car

Source: Pixabay

Leasing a car may cost you somewhere between $200 to $900 a month, depending on the brand, condition, and model. If you are not ready to finance a car, leasing would be the right option for you.

Let us understand what is the popular choice among Canadians, lease a car or finance it?

Have a look at the trend on Canadian car lease versus finance in 2020-21. While both leasing and financing have their pros and cons, some factors can swing your decision favoring one.

Car leasing traces back to the past 60 years. All these years, you will find most dealers display lease prices over financing in their ads. Why is so? Because dealers find leasing more lucrative than financing.

Do Canadians prefer car leasing over financing?

If you compare the data from the United States, for the year 2020, one out of four vehicles/cars is on lease. A study shows that the percentage of newly leased vehicles hovered around 30 percent in the United States from the first quarter of 2017 and 2020.

We found leasing to be a popular choice in this part of the world.

It brings us to our next question, leasing over financing–Which is better?

Car leasing
Source: Unsplash

Car leasing vs. financing in Canada

Consumers are more likely to lease than finance a car, even though it leads to a higher total cost in the end.

Arguments in favor of leasing a car

We found the following are dominant factors for consumers to lease a car.

Lower payment streams

Consumers prefer deals with lower payment streams even though they may pay a higher cost over a period.

Depreciation Cost

Car is a depreciating commodity. The cost of depreciation of your car reduces your actual future income and savings from the car. Leasing a vehicle transfers the depreciation cost to the buyer.

Maintenance Cost

The company leasing the car bears the costs to maintain it in excellent condition throughout the leasing period and for eventual sale after the lease period is over. Leasing consumers can return the car when maintenance costs become too high and lease a new one.

Interest component

The interest component of the auto loans can be substantial in financing a car and can significantly add to the sticker price.

Budget Constraint

A car lease is a viable option when you are running on a tight budget. Many people think the monthly cost of financing a vehicle works out to be double.

Car Accessibility

You may access a variety of cars while leasing. Due to budget constraints, many variations may not be accessible while financing. You can hire the brand of your choice with a low payment stream.

Car Financing
Source: Freepik

Arguments in favor of financing a car

When you decide between leasing and financing, there is much more to look at than the monthly payment. The low payment stream for car leasing may look enticing, but a number of other factors may drive you to finance a car.

Equity Gain

You may get lower monthly payments while leasing, but your end of the term payments will add up to a substantial amount. At the end of the leasing period, you do not own the car. For car financing, you have the car equity in your favor.

Low-Interest Rate

The end of 2021 could be the right time to finance your car. The economic downturn stalled many flourishing businesses. It forced banks to reduce interest to uptick consumer sentiments for purchasing and investing.

You might also like to compare total spending and savings on a car lease vis-à-vis financing it.

Upgrade your used car to a brand new one

It is a hard choice for leasing, but not so hard when you own a car and want to change it for a better brand, model, or version. Due to fast depreciation, upgrading your automobile in a brief span is a good idea. Repeat buy costs less than repeat lease as you will sell off the existing one before financing the new car. It reduces the actual perceivable cost of a new automobile for you.

High Maintenance cost

When your car ages, the maintenance cost mounts. It does not make business sense to continue withholding a car costing you more in maintenance than before. The idea is to get rid of the old one and get a new car with low maintenance overhead.

Now that you understand what you need to know about leasing and financing a car to make an informed decision, we set the stage for our last call, the final nail in the coffin.

Buying a car
Source: Freepik

Why is car leasing expensive?

Let’s now consider the factors that help you make the right choice.

Pay ahead of time

Putting money down on a lease may not lower the overall cost at the end of leasing. You can save more money in the long run with a car loan. The dealers compute all the interest charges into the lease price upfront at the beginning of the term. Hence, you pay the future interest in the total leasing cost at the beginning of the leasing term.

Car Ownership

Buying a car gives you a sense of ownership, pride, and accomplishment. You undoubtedly earn equity. Leasing a car leaves you feeling that you are driving an automobile that does not belong to you. It will never be yours until you decide to buy it when the lease gets over.

End up paying more than you thought

When you lease a car, what you owe on it only unfolds to its actual value at the end of a lease. You will know the overall leased car cost when you reach the end of term, which could be double the cost of financing the same car.

Do I buy a lease car?

You can buy the automobile for less than its current market value from the leasing company. Even if it looks like overpaying slightly, getting a new car is always a better idea.

Buy a lease car
Source: Freepik

What if the car prices go down in the Future?

That is the time to buy a new car. We expect car prices to go down at the end of 2021 because of the economic downturn, making it a perfect time to own a car instead of leasing. Wait for the prices to go up to sell off your old car.

When does car leasing make more sense?

To some, leasing can be more appealing than buying because of apparent cost benefits and the dealers’ convincing skills. Monthly payments could be lower because you are not paying back any principal.

Want to lease a car 24 or 36 months

The ideal car leasing terms are 24/36-month with additional flexibility. End-users will find 24-month contract costs a lot more money than monthly payments. For affordability, you can reduce the monthly payments by going for a 36-month contract.

Brighter time ahead for car buyers

Watch for car prices at the end of 2021. It could be the go-to period to buy a car, truck, or SUV. If you cannot wait to buy your dream car, you can still score great deals throughout 2021 because of the economic downturn. Money is currently cheap to borrow, and automakers are offering good deals on financing and cash deals. Look out for older models as they are in the bargain rack.

References:
https://www.statista.com/statistics/453122/share-of-new-vehicles-on-lease-usa/
https://journals.sagepub.com/doi/abs/10.1509/jmkr.44.3.490
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