Wize High School Grade 11 Math Textbook > Financial Applications
Buying and Leasing
Buying and Leasing
Let's talk about the options for getting your first car.
What is Leasing?
Leasing a vehicle is like renting it for a fixed short-term period of around 2-4 years.
You pay a fixed monthly payment, and then you return the car after the specified time.
What is Buying/Financing?
It is possible to buy a car outright using your savings (also called paying cash). However, most people finance their car purchase, which means they loan money to buy the car. In this case, they must repay the loan with monthly payments over a certain period of time with interest. Once all of the payments are made, the car officially belongs to the buyer.
Wize Tip
A longer repayment period means smaller monthly payments, but over the course of the loan, more interest is paid.
Buying vs. Leasing
Leasing usually involves smaller monthly payments than financing, and at the end of a lease you can start a new lease with a new car.
Why Would Anyone Buy?
- Leasing a new car every few years means monthly payments never end. Financing might come with higher monthly payments, but there is an end-date when no more payments are required.
- Leasing means you are locked-in with the monthly payments that can be very expensive to change part-way through Buying gives the owner flexibility, and the freedom to refinance (renegotiate monthly payments) or trade-in their car
- Leasing involves kilometer-limits: if you drive too much, you may have to pay high fees. Buying has no such restrictions: you can do as you please since the car is yours.