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Auto Financing – Lease Vs Loan

Auto Financing – Lease Vs Loan

When it comes time to get a new vehicle, you may be considering one of two options. You can either lease a vehicle or take out a loan to help pay for the cost of the vehicle. What is the difference between leasing and taking out a loan to pay for a car? What are the benefits and which is the best option?

Buying (financing) a vehicle will give you ownership of the vehicle once the financing term is over and the car has been paid for. Leasing doesn’t enable you to own the vehicle when your lease is up. Likewise, if you don’t like to tie yourself to one car for years, leasing gives you the opportunity to change cars every few years without having to worry about a loan.

Initial costs for buying a car is typically a down payment, taxes, registration, and other fees and charges. When leasing a vehicle there may be the first month’s payment, refundable security deposit, taxes, registration fees, and other charges.

Both leasing and financing a car require monthly payments, however lease payments are usually lower than loan payments as you are paying for the vehicle’s depreciation instead of the actual vehicle price. Owning a car lets you drive unlimited mileage while leasing a vehicle gives you an allotted annual mileage count. If you do a lot of driving, you may want to consider purchasing or seeing if there’s a way to negotiate the lease terms, or you may pay extra in over mileage costs.

You can end your lease early if you choose to, but there may be a penalty for doing so. If you terminate your loan early, you are responsible for the payoff amount as well. Returning a purchased vehicle requires you to sell or trade in the vehicle in order to get another one. Returning a leased vehicle will let you walk away with just paying the end-of-lease costs and you won’t have to worry about reselling or trading in the vehicle.

The Federal Reserve’s official website can guide you through the other differences in buying vs. leasing, and it can certainly help you make the right decision based on your vehicle needs.