Our customers at CMP Auto often ask us whether buying or leasing a new vehicle from our dealership is the better option for them. When you choose to buy, you pay the full cost of the vehicle in exchange for full ownership. On the other hand, leasing means that you only pay for a portion of the cost for a period of temporary ownership.

If you’re currently weighing the options yourself, our finance department at CMP Auto in Calgary is here to help. Read our guide below for more information on both options and be sure to give us a call or contact us online for more information.

BUYING
  • Upfront costs and monthly payments are higher compared to leasing
  • Once the loan is paid off, you own the car in full, allowing you to build equity
  • No limitations on mileage or modifications
LEASING
  • Monthly payments are lower than buying
  • You can switch out your car for a newer model every few years
  • You will have to return the vehicle to the dealership at the end of the term
  • Most lease contracts include annual mileage limits, and any modifications must be reverted before the vehicle is returned
  • Stricter insurance coverage is required to lease a vehicle

Understanding Vehicle Financing

Vehicle financing involves borrowing money to buy a car through an auto loan. This option allows you to spread the cost of the car over several years, with interest calculated using simple interest (as opposed to compound interest, which accumulates over time).

On average, new car loans last about 68 months, though 72 months is common. During this period, you make monthly payments that include both the loan principal and interest. Most auto loans are amortized, meaning early payments are largely applied to interest rather than the principal.

Financing a car generally means higher monthly payments than leasing, as you're covering the full price of the vehicle along with interest. However, once the loan term ends, you own the car outright, and no further payments are required. Additionally, owning the car allows you to build equity, and a well-maintained vehicle can increase its residual value, which is beneficial for future trade-ins or resale.

Understanding Vehicle Leasing

Leasing a car is essentially renting it for a set period, usually between two and four years. During this time, you make monthly payments, giving you the flexibility to upgrade to a new model every few years without paying the full purchase price of the car.

When considering a lease, keep the following terms in mind:

Lease Term: The length of the lease agreement.

Down Payment: The initial amount due upfront when starting a lease. A larger down payment can reduce your monthly payment.

Security Deposit: A refundable fee paid at the start of the lease to protect the leasing company against potential damages or missed payments. This deposit is refunded if the vehicle is in good condition and lease terms are met.

Monthly Payment: Your recurring monthly amount, determined by factors such as the vehicle's price, the lease duration, and mileage limits.

Residual Value: The projected value of the car at the end of the lease. A higher residual value often leads to lower monthly payments, as you’re paying for depreciation rather than the full vehicle price.

Financing

Comparing Monthly Costs

Leasing is typically the more affordable option upfront, offering the advantage of driving a new car every few years. However, leasing doesn’t allow you to build equity in the vehicle, and you must return it at the end of the lease unless you decide to buy it.

In contrast, financing a car results in higher monthly payments, but once the loan is paid off, the car is yours to keep, modify, or sell. If you plan to own the car long-term, buying can be more cost-effective, especially if you intend to keep it after the loan term ends.

Budgeting for a new vehicle is crucial to ensure you're getting the best value. Use our car payment calculator to estimate your potential monthly payments.

End-of-Term and Early Termination

Many customers choose to buy their vehicles, as it provides clear ownership once the loan is paid off.

For those leasing, there are several options when the lease term ends:

  • Return the vehicle
  • Purchase the vehicle
  • Lease a new vehicle

If you return the vehicle, be prepared to pay any end-of-lease charges, such as fees for excess wear, tear, or mileage. If you decide to buy the leased vehicle, the buyout price is usually outlined in your lease agreement.

Terminating a lease early typically requires advance notice, and doing so may incur significant penalties, ranging from a fixed fee to the full remaining lease balance. Unpaid penalties can be sent to collections, damaging your credit score for up to seven years.

Financing

Visit Us Today at Fort McMurray

Choosing between buying and leasing a vehicle doesn’t have to be overwhelming. At CMP Auto in Northeast Calgary, our team of experienced sales advisors is ready to assist you in finding the option that best fits your budget and goals. Contact us today or stop by our location at 1313 36th Street NE to learn more.

Frequently Asked Questions

Does financing a vehicle build credit?

Although financing a vehicle may initially cause a dip in your credit score, making regular, timely payments will help improve your credit in the long run.

Is it better to pay off your car loan early?

Paying off your car loan early can save you money on interest and help you eliminate debt faster. If you plan to sell your car before the loan is fully paid off, consider that it may be more beneficial to pay off the loan if it will take you more than two years to finish.

How much of a car lease is tax deductible?

As of January 1, 2025, you can deduct up to $1,100 per month in lease payments, totaling up to $13,200 annually.

What happens if you damage/crash a leased car?

If your leased car is damaged or totaled, you’ll still need to make lease payments until your insurance claim is settled. If the vehicle’s market value is less than the remaining lease balance, you’ll be responsible for paying the difference, unless you have gap insurance.

What is the minimum lease term?

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

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

Making a down payment when financing helps reduce the loan balance, providing security for the lender in case you miss payments. It can also help cover the gap between the car's value and the loan amount.

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