Should I Finance or Lease My Next Vehicle?

You are in great hands with the Finance Department at Volkswagen of Duluth. As you navigate your options in your next vehicle, you also must consider whether a vehicle lease or an auto loan is the best choice for you. The expert Finance Managers at our dealership near you are not only knowledgeable in both, but also have many different banks and other financial institutions available to them to help you find the best fit for you.

Some things to consider when deciding between a lease or a loan:

  • How many miles per year do you typically drive? 
  • How long do I usually keep my vehicle?
  • Do I want a new vehicle every 2-3 years?
  • Do I often modify my vehicles?
  • What is a better financial decision for me overall?
  • Which form fits my current needs?
  • Will I be using my vehicle for business?


Things You Should Know About Financing

The most common contract in automotive is the auto loan. Most customers purchase their vehicle through a loan from a bank or other type of lender because of the flexibility it allows. At the end of the loan term, the customer will receive the title to their vehicle and own it outright. There are usually no penalties for paying the loan off early and there are no driving restrictions on the vehicle while the vehicle is still under the lien. Typically, consumers looking to buy a car, truck, van, or SUV are interested in getting the lowest sale price. That price, combined with the annual percentage rate (APR) of the interest on the car loan as well as taxes on the vehicle, will be spread out over the course of a multi-year loan. Usually, the automotive loan is a more economical choice in the long-term. 

With a car loan, should you decide to make modifications to the vehicle you are free to do so without penalty from the lender, but you would need to check with your warranty companies to ensure you do not void any active warranties with the vehicle. Otherwise, you are free to customize your vehicle to your wants and needs. If you tend to drive a lot or for very far distances, there are no mileage limits and no penalties from the loan for the mileage you use in your vehicle. 

Many who decide to purchase a vehicle are concerned about vehicle depreciation. While initial depreciation can occur, automotive markets have held used car values very high and helped owners retain value in their vehicles. The percentage rates for your loan depend on your credit score and the current markets, but the rates are often very low or competitive. Financed vehicles enjoy lower insurance premiums for their vehicle, so the overall cost of owning the vehicle is lower in the end. 

If you tend to keep vehicles for 5 years or more, a vehicle loan is probably the best choice for you. In the end, you avoid leasing fees and potential penalties, so though your initial payments may be slightly more, you save money overall with financing your vehicle. You also build equity with every payment you make instead of just paying for the use of the vehicle. This means you start working towards full vehicle ownership right away. Payments on an auto loan tend to decrease as you build the equity in your vehicle and less is owed towards the principle. Extended Warranty programs are available to those who choose to finance their vehicle so that you are covered even if the manufacturer warranty does not extend the full length of the term of your loan or if you continue to use your vehicle after it is paid off.  

If you decide that it is time to change vehicles, you also have the freedom to sell your vehicle to another person whenever you want, without contract restrictions. The full value of your vehicle in the current market minus what you may owe in the lien on the vehicle is available to you in the transaction. 


Things You Should Know About Leasing

When you lease a vehicle, you are not paying for the entire vehicle but rather the value of that car, truck, SUV, or van you use for the time you are driving it plus leasing fees. In the short term, based solely on monthly payments, it is often a lower payment to lease than to finance. More often than financing, a small down payment is expected to start a lease. However, you do not retain ownership of the vehicle, but instead are allowed to use the vehicle for an agreed amount of time. This means you will not be able to modify the vehicle in any way. 

Every lease agreement has a stated number of miles you’re allowed to drive without paying a penalty. This limit typically is 12,000 to 15,000 miles, but you do have the option to purchase more miles at a discounted rate when starting your lease. You will usually have a standard manufacturer’s warranty that covers your vehicle for at least 36 months. Many states allow great tax advantages to those who lease. Contact a tax professional with questions about leasing a vehicle and the benefits available to you. 

When leasing a vehicle, you’ll likely want to seek the best overall lease price with the lowest possible payment that includes all taxes and fees since the term of the lease is usually shorter than a car loan term. In some cases, a lease contract may allow you to transfer your lease agreement to another driver for the remainder of its term, but the finance company may charge you a transfer fee. If this is something that you are considering for your lease, the Volkswagen of Duluth Finance Team is here to help you navigate your contract to see if that is available to you. Typically, insurance premiums for a leased vehicle is higher than that of a financed car. 

If you find that you really like your vehicle and want to purchase it so you can have it longer than the lease term, many lease contracts allow you to buy your vehicle out of the lease. Some things to consider in this decision are:

  • Does the leased vehicle fit your lifestyle?
  • Did it perform well for you?
  • Is it suitable for your location or future places you may live?
  • How is the gas mileage of your leased vehicle?
  • What is the residual value of your leased vehicle?
  • What will be the upkeep of your leased vehicle if you purchase it?


At the end of the lease, you are expected to return the car to a dealership, or you may have the option to purchase the car at the end of your lease term. Should you exceed the mileage limit that was agreed upon in the lease, or if there has been any damage to the vehicle, you will have to pay the appropriate amount to cover the costs. If the car is not exactly what you are looking for, many lenders allow you to trade in the vehicle and lease or purchase another that is more suited to your needs and lifestyle. If it was perfect for you and you decide to purchase the vehicle instead of turning it in at the end of the lease term, the price is generally the vehicle’s residual value plus processing fees required by the manufacturer. The value of your leased vehicle depends on how the market has reflected upon the value of your vehicle as well. 

If you currently lease a vehicle and would like to explore your options Contact Us to get all of the answers you need to make the best decision for the end of your lease.

If you have more questions, please feel free to Contact Us to get the information you need!

So, what's your answer to the question, "Should I buy or lease?" No matter which option you have settled on, you will have a great experience with Volkswagen of Duluth.