What is the Difference Between Financing and Leasing a Car?

With both traditional financing and leasing, the client makes monthly payments to a financial institution for a specified period of time. Choosing between a lease and a traditional purchase is an important decision.

What is the main difference?

When purchasing a vehicle, the client takes financial responsibility for the entire cost of the transaction and the vehicle’s full depreciation. Retail installment contracts are written on longer terms than leasing with typical ranges from 60-84 months. At the end of a retail installment contract, the client receives title and “ownership” at that point. Leases are written on shorter terms on average and because the client is only paying for the part of the vehicle that he or she is using, the monthly depreciation. This results in lower consumer payments on leases than traditional financing.

Is leasing for me or should I buy?

To make an informed decision, a consumer should consider many factors including his or her average trading patterns, driving habits, and monthly budget to name a few. If a client has kept their previous vehicle for 6 years or longer and intends to stay with the same pattern, a purchase makes more sense especially if they are able to pay the vehicle off quickly eliminating extra bank interest. For clients that trade every 3 to 5 years, leases make very good sense because you are only paying for that specific vehicle’s depreciation as you go, thereby offering lower payments than buying and reducing your exposure to negative equity or ‘being upside down’ at trade time.

What are the benefits of leasing a car?

For clients that keep 3-5 year trade cycles, leasing offers lower monthly payments and less exposure to negative equity when you trade because the lease agreement has matched the client’s lifestyle and needs better than a long term finance contract. Closed-ended leases offer guaranteed residuals thereby adding another layer of protection for clients. With a consumer-friendly closed-ended lease, the value of the vehicle at the end of the term is guaranteed for the consumer by the funder, no matter what the actual market value is at the time.  This is an extremely important feature of a closed-ended lease as wrecking your vehicle, body style changes, economic recessions, consumer sentiment, etc. all can have a major impact on a vehicle’s future worth. Lease customers don’t have this concern. If their vehicle is worth more than the guaranteed residual at the end, the client keeps the equity and uses it as he or she sees fit. If the vehicle’s actual market value is less than the residual at the end of the term, the client can exercise his or her right to have the funder take the vehicle back at the pre-guaranteed value thus eliminating the customer’s exposure to negative equity. Some leases( including the D&M EZ Lease), but not all, have GAP insurance included in the payments. GAP offers protection when a client’s vehicle is deemed a total loss by the insurance company, but the amount owed to the bank exceeds the vehicle’s market value.

If you’re interested in leasing a new car, start by filling out our online quote form. Our D&M Auto Leasing representatives will contact you and help you find the exact car lease you’re looking for, down to the color and features. Also, when you lease with D&M, our EZ Lease gives you the option to make no down payment with no payments for 60 days. Your D&M representative will assist you in navigating through the process. We are appreciative of the opportunity to work with you and aim to provide world-class service.