Making the Decision Between Auto Loans and Leases

When acquiring a car, there are two options that are presented to buyers. Those options are the auto loan and the auto lease.

The auto loan is very common. A consumer gets an auto loan either form an auto lender, a traditional bank lender, or obtains one from the auto dealer, and this loan is used to pay for the car upfront. The installment loan is then paid off over its pre-set repayment period.

An auto lease is similar, but it’s pretty different, too. For starters, it allows you to drive a car, but you don’t actually OWN that car. However, both of them require monthly payments. Here’s a little more information.

The Differences Between Loans and Leases

The differences between loans and leases are obvious. A lease allows someone to drive and swap vehicles while paying into the lease on a monthly basis. A loan will allow a person to drive and own a single car while paying off the installment loan on a monthly basis.

So they both allow you to drive a car, but there are some key differences that need to be reiterated.

For starters, an auto lease does not lead to ownership. You’re paying monthly just to drive a certain car, but you’ll be returning or swapping it eventually. An auto loan leads to ownership once it is paid off over a set time.

A lease allows you to replace your car every so often, but an auto loan leaves you with a certain car.

Auto lease down payments also tend to be less than auto loan down payments, and the initial fees on a lease tend to be less overall.

In certain cases, both options can trump each other.

When it comes to depreciation, the auto lease usually wins out. Car depreciation hurts the owner of the vehicle. Since an auto leaser doesn’t own the car, then they won’t be paying into a depreciated car to their name. This isn’t the case with an auto loan. Unless the car is a classic, vintage model that gains value over time, the lease will win out in this regard.

Auto leases sometimes come with mileage limits which is not the case for an auto loan. If there is a mileage limit in the lease agreement, then you can’t drive the car as much as you want or need to. The leaser may have to pay per mile exceeding that limit. This is unheard of with an auto loan.

Opting for the Loan Instead of the Lease

Compared to a loan, a lease creates more pressure to ensure the mileage and condition of the vehicle are in check.

With a car loan, all a person has to do is make the payment and no one says a word. There is a lot less pressure and no fees to be paid once the loan is paid off. In fact, a person can choose to hang on to the paid-off vehicle for a while and enjoy being free of car payments. An auto loan leads to full ownership, plain and simple. You don’t have to deal with another owner at all.

If you have plans to move around, have long commutes ahead, or need to own a car, then an auto loan would be in your best interests.

Opting for the Lease Instead of the Loan

All in all, the lease is best for someone who only needs a car temporarily. You won’t have to pay into a depreciating asset. Furthermore, you can swap out cars ever couple years if you like to switch it up. Leases are just always going to cost you more in the long run. If you know you won’t exceed any mileage limits or put too much wear and tear on the vehicle, then you won’t be hit hard with fees. However, you’ll always be stuck paying into an auto lease, but a lease is great for someone who plans on living in a city for a year or two.

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