The Difference Between Financing & Leasing
ÂUnless you're able to put up the cash for your car, you have two choices: financing and leasing. There's no correct answer for which is better than the other. However, what makes sense for you, the consumer, is contingent on what you want out of your next vehicle and what makes sense financially. Both financial exchanges offer different responsibility and ownership elements that make each better situated for different situations. The owner takes different risks depending on if they are financing or leasing.
Ownership
BUYING
You own the vehicle and get to keep it as long as you want.
SELLING
You don't own the vehicle. You get to use it but must return it at the end of the lease unless you decide to buy it.
Up-front Costs
BUYING
They include the cash price or a down payment, taxes, registration and other fees.
SELLING
They typically include the first month's payment, a refundable security deposit, a down payment, taxes, registration, and other fees.
Monthly Payments
BUYING
Loan payments are usually higher than lease payments because your paying off the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees.
LEASING
Lease payments are almost always lower than loan payments because your only paying for the vehicle's depreciation during the lease term, plus interest charges (called rent charges), taxes, and fees.
Early Termination
BUYING
You can sell or trade in your vehicle at any time. If necessary, money from the sale can be used to pay off any loan balance.
LEASING
If you end the lease early, early-termination charges can be almost as costly as sticking with the contract.
Vehicle Return
BUYING
You'll have to deal with selling or trading in your car when you decide you want another one.
LEASING
You can return the vehicle at lease-end, pay any end-of-lease costs, and walk away.
Future Value
BUYING
The vehicle will depreciate but its cash value is yours to use as you like.
LEASING
On the plus side, its future value doesn't affect you financially. On the negative side, you don't have any equity in the future.
Excessive Wear & Tear
BUYING
You don't have to worry about wear and tear, but it could lower the vehicle's trade-in or resale value.
LEASING
Most leases hold you responsible. You'll have to pay extra charges for exceeding what is considered normal wear and tear.
End of Term
BUYING
At the end of the loan term (typically four to five years), you have no further payments and you have buily equity to help pay for your next vehicle.
LEASING
At the end of the lease (typically two to four years), you'll have to finance the purchase of the car or lease to buy another.
Customizing
BUYING
The vehicle is your to modify or customize as you like.
LEASING
Because the lessor wants the vehicle returned in sellable condition, any modificiation or custom parts you add will need to be removed before you return the car. If there is any residual damage, you'll have to pay to have it fixed.
AdChoices