Car financing or leasing: Which to choose?

Car financing or leasing: what's the difference?

If you’re looking for a new car and can’t afford to buy it outright, you can also choose financing (auto loan) or leasing (lease agreement).

Leasing involves renting a car over a long period, making monthly payments until the end of the lease. A leasing contract generally lasts two to four years (24 to 48 months), after which you return the car. At the end of the lease period, you may be able to purchase or finance the vehicle, depending on the residual value and your needs at that time.

Another option is financing (auto loan) the car. In a way, it’s comparable to a mortgage, i.e. financing for the purchase of a home. Here too, you make monthly payments, but the car belongs to you once the loan is fully paid off. Although you are responsible for repairs and maintenance, you will no longer have monthly payments, which can make up for it.

Advantages of renting a car

Here are the main benefits of leasing a car:

• Car still under warranty
• No initial payment
• Lower initial costs
• Easy to switch to a new car after the lease term
• Lower monthly payments
• No obligation to sell the car when the lease expires
• Lower repair and maintenance costs (newer model car)
• Option to purchase the car at the end of the lease (depending on market value and residual value at the end of the lease – to be discussed with the dealer)

Disadvantages of car rental

Here are the main drawbacks of leasing a car:

• Early termination costs
• Not the owner of the car
• No modifications or customizations allowed
• Less flexibility (limited mileage)
• Maintenance to avoid additional costs
• Additional damage and excess kilometer charges
• Interest payments (from monthly payments)
• Sometimes higher car insurance premiums

Advantages of car financing

Here are the main benefits of financing a car:

• Car owner
• No more monthly payments to make once the loan is paid off
• No mileage restrictions
• Possibility of selling the car
• Option to keep the car as long as desired
• Generally the most profitable option
• Possibility of customizing or modifying the car
• Sometimes lower car insurance premiums

Disadvantages of car financing

Here are the main drawbacks of financing a car:

• Higher monthly payments
• Higher initial costs
• Higher borrowing costs and interest rates due to the loan term
• Responsibility for repairs and maintenance after warranty expires
• Depreciation in the value of the car
• Responsibility for selling the car (if applicable)

How does financing or leasing a car affect your car insurance?

When it comes to insurance, there is no difference between financing or leasing a car, so your car insurance premiums will not be affected. However, insurance companies base your premiums on specific criteria, such as your choice of car, your age, your gender, your place of residence, your driving history and so on. To get a better price, you can contact an insurance broker like ClicAssure, who has access to several insurance companies and personalized offers.

If you have decided to finance or lease your car, be aware that the lender will be named on your insurance policy.

In general, if the car is involved in an accident, your insurer will first pay the amount owed to the lender (financing or leasing). If the value of the car is higher than the amount owed, you will receive the difference. GAP insurance covers the costs if the car’s value is less than the remaining balance owed.

Bottom Line

In summary, financing or leasing a car has its pros and cons and generally has no impact on your car insurance premiums. Ultimately, it’s up to you to make the choice that best suits your personal and financial situation. Whether you choose to finance or lease a car, it’s essential to read the terms of your contract before signing it.

Don’t forget to compare car insurance with our tool to find the perfect car insurance based on your needs and budget.

Frequently Asked Questions