Thinking of Changing Your Lease to a Finance Agreement? Read This First

If you are considering changing your lease to a finance agreement, it is important to understand the implications and potential benefits of this decision. Leasing and financing are two common methods of obtaining a vehicle or other expensive asset. While leasing allows you to use the asset without complete ownership, financing allows for eventual ownership through installment payments. In this article, we will explore the key factors to consider before making the switch from leasing to finance. We will discuss the differences between the two options, the impact on your finances, and the potential advantages and disadvantages. By understanding these factors, you can make an informed decision that aligns with your financial goals and circumstances.

The Difference between Leasing and Financing


Leasing involves paying for the use of an asset for a specified period, usually ranging from two to five years. During this time, you make regular payments to the leasing company based on the agreed-upon monthly lease rate. At the end of the lease term, you typically have the option to return the asset or purchase it at a predetermined price, referred to as the residual value.

One of the main advantages of leasing is the lower monthly payments compared to financing. Leasing allows you to drive a newer car or use a higher-priced asset for a lower monthly expense. Additionally, lease terms often include warranty coverage, which helps to minimize maintenance and repair costs. Leasing also provides flexibility, as you have the option to return the asset at the end of the lease term and choose a new one.

However, it is important to note that leasing does not grant ownership of the asset. You are essentially renting it for the specified period, and you may face mileage restrictions and wear-and-tear limitations. If you exceed these limits, additional fees may apply. Additionally, you cannot make modifications to the leased asset without the lessor's approval.


Financing, on the other hand, involves borrowing money to purchase an asset outright. Instead of making lease payments, you make monthly installments towards the total cost of the asset, including interest charges. Once you complete all the payments, you become the owner of the asset free and clear.

One of the key advantages of financing is that you have full ownership of the asset. This allows you to make modifications, use the asset without any restrictions, and build equity over time. Financing also provides the opportunity to customize the payment term and structure based on your financial situation and preferences.

However, financing typically involves higher monthly payments compared to leasing. Additionally, you are responsible for maintenance and repair costs once the warranty period ends. Selling or trading in the financed asset may also require additional steps.

Factors to Consider Before Switching

Budget and Cash Flow

Switching from leasing to financing can have a significant impact on your monthly expenses. When considering this change, evaluate your budget and cash flow to ensure that you can comfortably handle the increased payments. Financing generally requires higher monthly installments due to the principal and interest components. Assess your income, expenses, and financial goals to determine if this adjustment aligns with your overall financial plan.

Additionally, keep in mind any upfront costs associated with financing, such as a down payment or trade-in value. These expenses can impact your immediate cash flow and should be factored into your decision-making process.

Ownership and Long-Term Use

One of the primary motivations for switching from leasing to financing is the desire for ownership. If you plan to keep the asset for an extended period or have specific customization preferences, financing may be the better option. With financing, you have the ability to modify the asset, use it without mileage restrictions, and build equity over time. Evaluate your long-term plans and consider how ownership aligns with your goals.

Mileage and Wear-and-Tear Restrictions

Leased assets often come with mileage restrictions to protect their resale value. If you frequently travel long distances or exceed the permitted mileage, leasing may not be the most appropriate choice. Additionally, leasing agreements typically include wear-and-tear restrictions, requiring the asset to be returned in good condition. If you anticipate significant wear-and-tear due to specific usage patterns or preferences, financing might be a more suitable option.

Flexibility and Vehicle Variety

Leasing provides flexibility by allowing you to select a new asset at the end of the lease term. If you enjoy driving the latest models and want to switch vehicles every few years, leasing might be the better choice for you. However, if you prefer to hold onto an asset for a more extended period and have the flexibility to modify or personalize it, financing is likely the more suitable option.

Potential Advantages of Switching to Financing

Ownership Equity

One of the significant advantages of switching from leasing to financing is the opportunity to build equity in the asset. As you make your monthly installments, you gradually decrease the outstanding balance. Over time, the value of the asset may appreciate, further increasing your equity. This equity can be leveraged in various ways, such as trade-ins, refinancing, or selling the asset for a profit.

Financial Flexibility

Financing offers greater financial flexibility compared to leasing. You have the freedom to customize the loan term, adjust the down payment, and select favorable interest rates. This flexibility allows you to tailor the financing arrangement to your specific financial situation and goals. Additionally, as the owner of the asset, you have the option to refinance the loan or consolidate debt if needed.

No Potential Mileage Penalties

While leasing often comes with mileage restrictions, financing does not have similar limitations. You can drive the financed asset as much as you want without incurring mileage penalties. This is particularly beneficial for individuals who travel long distances or have professions requiring extensive use of the asset.

Potential Disadvantages of Switching to Financing

Higher Monthly Payments

One of the primary disadvantages of switching from leasing to financing is the higher monthly payments. Financing typically involves higher costs due to the principal repayment and interest charges. Evaluate your budget and financial situation to ensure that you can accommodate these increased expenses. A thorough analysis of your income, expenses, and financial goals is crucial before making this transition.

Responsible for Maintenance Costs

Unlike leasing, financing shifts the responsibility of maintenance and repair costs to the owner. Once the warranty period ends, you are solely responsible for covering these expenses. These costs can vary depending on the type of asset and its age. It is essential to budget for regular maintenance and unforeseen repairs to avoid any financial strain.

Depreciation Risk

When financing an asset, you are exposed to the risk of depreciation. Certain assets, such as vehicles, depreciate over time. This means that the market value of the asset can be significantly lower than the outstanding loan balance. If you decide to sell or trade in the financed asset before completing the loan term, you may experience a financial loss. To mitigate this risk, consider factors such as the asset's depreciation rate, future market conditions, and your long-term ownership plans.


Switching from leasing to financing requires careful consideration of various factors. While financing offers the potential for ownership equity and increased financial flexibility, it also comes with higher monthly payments and responsibilities for maintenance costs. Understanding your budget, long-term plans, and usage patterns is essential in making an informed decision. Consult with finance professionals and weigh the pros and cons before finalizing your choice. By considering all these aspects, you can confidently decide whether changing your lease to a finance agreement aligns with your financial goals and circumstances.

23 October 2023
Written by John Roche