Pros and Cons of Leasing and Financing a Car
When considering a new car, one of the biggest decisions you’ll face is whether to lease or finance. Both leasing and financing come with their own set of benefits and drawbacks depending on your needs.
Advantages of Leasing a Car
- Lower monthly payments: Since you’re paying for the car’s depreciation over the lease term rather than the full purchase price, monthly payments are typically lower than financing.
- Newer model access: If you enjoy driving new editions of cars, leasing could be a great option for you. Leasing allows you to drive newer models every few years, keeping you up-to-date with the latest technology, safety features and fuel efficiency.
- Warranty coverage: Leased cars are usually under warranty throughout the lease period, which can save you money on unexpected repairs and maintenance.
- Fewer upfront costs: Leasing often requires a smaller down payment than financing, freeing up cash for other expenses.
Disadvantages of Leasing a Car
- Mileage limits: Most leases come with mileage limits, typically around 10,000 to 15,000 miles per year. If you exceed these limits, there might be fees involved.
- No ownership equity: Since you don’t own the car at the end of the lease, there’s no resale value or equity built over time.
- Wear and tear charges: You may be charged for excessive wear and tear, adding an extra layer of stress about keeping the car in tip top condition. There are usually high fees involved for any damage to the car.
- Limited customization: Leasing usually prohibits significant modifications, so if you like to personalize your car, leasing may not be the best option.
What is Leasing a Car?
Leasing a car essentially means renting it for a set period, typically between two and four years. During this time, you make monthly payments that allow you to drive the vehicle without actually owning it. At the end of the lease, you return the car to the dealership or have the option to buy it outright if it’s offered. There are pros and cons to leasing a car, both of which should be considered before getting your next vehicle.
What Does It Mean to Finance a Car?
Financing a car, or buying with a loan, allows you to eventually own the vehicle outright. This is a huge selling point for many drivers. With financing, you take out a loan for the car’s total price, which you repay in monthly installments over a few years. Once the loan is fully paid off, you own the car. At this point, you can do whatever you see fit with it: keep it, sell it or trade it in.
Advantages of Financing a Car
- Ownership and equity: Unlike leasing, financing allows you to own the car outright once the loan is paid. This builds equity, and the vehicle becomes an asset you can sell or trade-in.
- No mileage limits: When you finance, there are no mileage restrictions, making it ideal for people who drive long distances regularly. You don’t have to stress about how many miles you’re putting on the vehicle.
- Freedom to customize: Financing provides full ownership, allowing you to make any modifications or customizations you want.
- Long-term savings: While monthly payments may be higher than leasing, once the loan is paid off, you own the car and no longer have payments, saving you money in the long run.
Disadvantages of Financing a Car
- Higher monthly payments: Financing typically comes with higher monthly payments compared to leasing since you’re paying for the full price of the car plus interest.
- Depreciation risk: Cars lose value over time, so you may find yourself paying for a car that’s worth less than what you owe if the depreciation rate is high.
- Maintenance Costs: After the warranty expires, you’re responsible for all repairs and maintenance costs, which can add up, especially as the car ages.
- Down payment requirement: Financing usually requires a more significant down payment than leasing, so you’ll need more cash upfront.