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Finance vs. Lease: Which is Right for You?

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couple signing paperwork at dealership

It’s finally time to bring home a new car, but what’s the best way to do it? You could place a deposit and drive off with a car loan, or lease a vehicle, usually for two or three years. Before you sign any paperwork, consider the pros and cons of each option.


Which Brand? Younger drivers seem to prefer Chevrolet


Leasing

When you lease a car, you are essentially signing up for a long-term car rental. Instead of putting money down every month to buy a vehicle, your payments cover the depreciation of the car’s value over the course of your lease, according to US News and World Report, in addition to fees and interest.

On one hand, lease payments are typically much lower than those on a new car loan, which means you can afford a better vehicle with a lease. If you choose to turn a leased car in and move on to a new one, it is an easy way to make sure you’re always driving the latest model with all the newest safety and entertainment technology with it. One last big reason to lease that US News and World Report points out is that your lease term usually is always covered by a new car’s warranty. That means if something goes wrong, it’s possible that the manufacturer will have to pay for car care.

Before you sign a lease, Money Under 30 cautions you to look at everything on your contract. Most leases have mileage limits, which means if you drive more than the dealership plans (and the depreciation is measured for), you’ll have to pay for each additional mile you drove. Like an apartment, when you turn in a leased car the dealership will inspect it. If it has more than just wear-and-tear damage, like tents and tears, you could be charged for repairs or lost value.

Financing

Financing a vehicle is a common way to bring home a new ride. You usually offer a down payment to the bank, who then puts the cash up to pay for the rest of your car. From there, you make monthly payments until the car becomes completely yours.

US News and World Report says that the biggest advantage of financing a new car purchase is that at the end of the loan you will own a car. Until you need or want a newer one, the vehicle belongs to you and you can drive it as far as you want and make as many customizations as you wish. Not only will you not have a car payment, but if needed the car can serve as collateral on other loans. When you are ready to sell, you can take the money from selling your car and use it for the down payment on your next choice.

Of course, no choice is perfect. If you finance a car, your payments every month will probably be higher than a lease, according to Lifehacker. You also need a sizeable down payment to start a loan, which may not be possible depending on your financial decision.


Find Your Loan: A dealership can help you


Whether you lease or buy a car is up to you. Consider talking to your trusted dealership or financial advisor before you make a final decision.

Sources: US News and World Report, Lifehacker, Money Under 30