Car Leasing 101 - Difference Between Leasing and Buying a Vehicle

Knowing the Difference Between Leasing Vs Buying a Vehicle

Leasing a Vehicle

Leasing a vehicle is purchasing only a portion of the vehicles overall cost. This is the cost of the time and wear and tear you put on the car for the duration you drive the vehicle.

Leasing a vehicle defines the time duration you’re leasing the vehicle (ex. 24, 36 months), how many kilometers or miles you drive, option to place a down payment (define: down payment), sales tax on your monthly payments in some provinces and/or states, extra fees where applicable such as a security deposit and pay a monthly rate that would be considered similar to an interest rate (define: base interest rate) on a loan.

Buying a Vehicle

You pay the full cost of the vehicle when you opt to buy a car or truck. You pay the entire amount of the vehicle regardless of how many kilometers or miles you drive.

Typically consumers place a down payment on purchasing a new vehicle and/or use a trade-in vehicle to leverage some of the cost of the purchase. Upfront costs can typically include the down payment (or trade-in), sales tax and interest.

When you purchase a car, the down payment will help reduce your overall monthly payments for the duration of your loan. Consumers typically acquire a vehicle loan from their bank (define: bank loan rate), credit union or other financial institution to help purchase the entire vehicle. Only est. 10% of consumers actually pay the full costs of the vehicle in cash. All fees and costs associated to purchase a new vehicle are typically rolled in the full cost of the loan, which is paid monthly to your financial institution you lent you the equity to make the vehicle purchase.

In some situations consumers may find the financial option of renting a car versus leasing a car, or buying a car, to be the preferred choice. Let’s look briefly at the differences between leasing a vehicle and renting a vehicle.

Part III: Comparison of Car Leasing vs Buying