One of the most common concerns that we have helped our customers with at Summit GM in Fort McMurray is the decision between buying or leasing a new car. Buying a car from our dealership means paying the entire cost of the vehicle in exchange for full ownership, while leasing means paying a portion of the cost for a period of temporary ownership.

To help you make an informed decision on which option is best for you, our finance department has some helpful tips and information on the benefits of buying and leasing. For more help, don’t hesitate to give us a call or contact us online today.

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BUYING

  • Higher upfront costs and monthly payments
  • You own the car outright when the loan is paid off, allowing you to build equity
  • There is no limitation on mileage or modifications

LEASING

  • Lower monthly payments
  • Allows you to drive a new car every few years
  • You won’t own the vehicle at the end of the term
  • Lease contracts impose annual mileage limits, and any modifications must be reverted before returning the vehicle
  • Requires stricter insurance coverage

Understanding Vehicle Financing

Car financing involves borrowing money to purchase a vehicle through a car or auto loan. This allows you to spread the cost of a new car over several years. In addition, interest in car loans is typically calculated using simple interest, meaning it would accumulate over time like compound interest.

On average, you should expect your new car loan to last about 68 months, though 72 months is more common. During this time, you’ll be expected to make monthly loan payments, including both the principal amount and added interest. Most auto loans are amortized, meaning earlier payments consist mainly of interest rather than principal payments.

Choosing to finance your car means that your monthly payments will generally be higher than lease payments, since they cover the entire cost of the vehicle plus interest. That said, once you’ve reached the end of the loan term, you’ll own the car outright, with no more required payments. Moreover, you’ll also be able to build equity, and a well maintained vehicle can positively impact its residual value, a huge plus for future trade-ins or sales.

Understanding Vehicle Leasing

In essence, car leasing means renting a vehicle for a predetermined period of time, typically between two to four years. During this time, you’re required to make monthly lease payments, which allows you to regularly switch out your vehicle for a newer model without committing to a full vehicle purchase cost.

There are several key terms to consider when you’re looking at leasing a vehicle:

  • Lease Terms: This is the duration of the lease contract.
  • Down Payment: The initial amount that you must pay upfront at the beginning of a lease term. A higher down payment can reduce the cost of your monthly payments.
  • Security Deposit: A refundable fee that is also paid at the start of a lease term to protect the leasing company against potential damage to the vehicle or missed payments. Unlike the down payment, security deposits are returned at the end of the lease, provided that the vehicle is in good condition and you’ve met all the terms.
  • Monthly Payment: The amount that you must pay each month during the lease term, which is influenced by factors including the vehicle’s sale price, the length of the lease, and the annual mileage limit.
  • Residual Value: The estimated worth of a leased vehicle at the end of the lease term. This plays a key part in determining your monthly payments, as a higher residual value typically means lower monthly costs, since you’re paying for a vehicle’s depreciation rather than its full purchase price.
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Comparing Monthly Costs

At a glance, leasing is the more budget-friendly option, with the added benefit of being able to drive a new car every few years. However, since you don’t own your vehicle outright during the lease term, you don’t build equity on the vehicle, and must return it to the leasing company at the end of the lease period unless you plan to purchase it.

In contrast, financing a vehicle involves higher monthly payments, which include the vehicle’s total cost plus interest. In exchange, once the vehicle is fully paid off, you can keep it for as long as you want, modify it, and sell or trade it at any time. If long-term ownership appeals to you, buying a vehicle can be more economical over time, especially if you plan to keep it for several years after it’s paid off.

Budgeting for a new vehicle is an important step in making sure that you’re getting your money’s worth. If you need a hand, you can use our car payment calculator to make sure you’ve got a clearer idea of what your monthly payments might look like.

End-of-Term and Early Termination

Many of our customers opt to buy their vehicles, as this simplifies the path to ownership – once you’ve paid it off, it’s yours.

However, if you’re choosing to lease a vehicle, you have a few options once your lease term ends. You can choose to:

  • Return the vehicle
  • Purchase it
  • Lease another vehicle

Returning the vehicle requires you to settle any applicable end-of-lease charges, including fees for excessive wear and tear or exceeding mileage limits. If you decide to buy the leased vehicle, the buyout price is usually specified in your initial lease agreement.

Most lease agreements require advanced notice before early termination, and terminating a lease early can result in significant penalties, often ranging from a fixed fee to the total rent due for the remainder of the lease term. Unpaid early termination penalties can be sent to collections, which will negatively affect your credit score for up to seven years.

Visit Us Today at Fort McMurray

Deciding whether you want to buy or lease a vehicle doesn’t have to be a headache. At Summit GM in Fort McMurray, our team of experienced sales advisors is here to help you make the choice that works best for your budget and goals. Reach out today or stop by our location on MacKenzie Blvd to speak with a professional and learn more.

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Frequently Asked Questions

Does financing a vehicle build credit?

While most car buyers might experience an initial reduction in their credit score, making your payments in a timely fashion is a great way to build credit in the long-term.

Is it better to pay off your car loan early?

Paying off your car loan early means you save money on interest and get out of debt quicker. Our sales advisors also note that selling your car might be the best option if it will take you longer than two years to pay it off.

How much of a car lease is tax deductible?

As of January 1, 2025, you’re able to write off up to $1,100 a month in lease payments, adding up to $13,200 over 12 months.

What happens if you damage/crash a leased car?

In the unfortunate event that you crash a car under a lease agreement, you still need to make payments until the insurance claim is settled. As with a loan, if the car’s market value is less than the remaining lease balance, you’ll owe the difference unless you have gap insurance.

What is the minimum lease term?

Lease terms start at a minimum of 24 months, with a maximum of 60 months.

Is it better to put money down when financing a car?

Putting an initial down payment on a vehicle provides lenders with some security in case you default on your subsequent payments. In addition, it also covers the gap between the car loan and its value.

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