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There certainly are financial differences between a car lease and auto loans, but what is more important is your lifestyle and preferences. In simple terms, making a decision between leasing or buying is entirely about personal preference with each of the options having their advantages and disadvantages. Generally the payments for a car lease are lower when compared to auto loans. This is due to the fact that in a lease, your payment is only for the amount of the vehicle you use. You may lease a car for $20,000, for which the dealer decides the value to be $12,000 after three years. You will then only pay $8,000 in addition to a finance fee for the period of three years.
However should you buy the same vehicle with auto loans for three years, you end up paying the entire $20,000 over three years. The main disadvantage of leasing is that once the three years are over, you return the car to the dealership and be left with nothing even after three years of making payments. Instead if you buy, you will be left with an asset that you can sell or continue to make the most of your vehicle without having to make any more payments.
It often happens that a car lease may require a lower down payment than auto loans. This is particularly the case when financing your car through a bank. Dealers sometimes offer car leases that requires down payment as little as $1,000. This may prove to be a great deal particularly when it’s an expensive luxury car that you desire. For a $40,000 vehicle, your bank may require 20% down, which works out to $8,000 in down payment alone. If you don’t have or don’t wish to put down too great a sum of money, a lease may prove to be the ideal solution.
Ask yourself how often you plan to get a new car. If your answer is going to be once every few years, leasing will probably be most suitable for you. But if you plan on using your car till the very end, it makes more sense for you to go for auto loans to buy it. Generally speaking, if your intention is to use a car for less than three years, a car lease will prove to be a more practical option than auto loans.
Is your preference to rent or to own? When it comes to lease versus buying with auto loans, it really boils down to a choice between ownership and rental. With a lease you are paying for the right to use the car. But with auto loans you can do as you please with the car as it is yours alone. It’s very similar to renting a home. In rented homes you usually do not have the right to paint or carry out renovations to the house and you need to maintain it in a decent condition otherwise you may have to pay money at the time of moving out. But as the owner of a house, you are free to make whatever changes you fancy and it’s also your decision as to whether to maintain it well or not. The same principle applies when you making a choice between a car lease and buying a car with auto loans.
Consider the amount of miles you will be driving. Car leases will allow you to drive a given number of miles every year, with the average being about 10,000 to 15,000 miles per year. If you exceed the allotted number, you will be charged for every additional mileage that you use. This charge will need to be paid when the term of your lease ends. In case you plan to drive beyond the extent of mileage allowed by your lease, it would probably be a better option to buy the vehicle with auto loans.
Thus there are a number of considerations that you need to address when making a decision on buying with auto loans as opposed to leasing it. Make sure you take the overall perspective and the amount you will be spending in the long run during your decision-making process.
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