You can finance an automobile by taking either a lease or a loan. A lease is a method of financing usage of a vehicle while a loan simply finances the purchase itself. They are two very different approaches, and each has its own perks and pitfalls. A lot of advisors and articles could strongly advocate one over the other. However, these are completely subjective comparisons and change completely based on your present circumstances, priorities, needs and preferences.
Ownership of the Vehicle
Probably the most significant detail of the lot is the ownership of the vehicle itself. At the end of a lease term, you are expected to return the vehicle to your dealer. Your lease payments are essentially analogous to rental payments, and the car belongs to the original owner, viz. the dealer throughout. Some might give you an option of purchasing once the lease period is over, but until then, the car doesn’t really belong to you.
If you go for financing, the lender is legally entitled to a lien against the car till you pay them off. Once the entire payment is completed, the car is yours to own without any further hassles or disputes. Each of your payments is a step towards equity and facilitates the eventual hand-off for outright ownership.
Cost
Automobile lease payments are almost always cheaper than finance or loan payments. As the value of a vehicle decreases with use and mileage, the car owner really loses money while leasing it out to you. By paying the lease periodically, you essentially cover this depreciation. Most, if not all leased vehicles have a restriction on mileage, beyond which you will need to pay the dealer more money at the end of the lease, as you have devalued the car more than expected. Visit https://leasequit.com/ to understand more about the terms involved in leasing.
When it comes to financing, your monthly payments are generally higher, because you are purchasing equity in ownership as well as paying for the depreciation too. This may, however, make more sense to you due to the ownership at the end of the tenure, which would mean you aren’t paying any extra. On the other hand, you’re essentially paying for someone else’s car on making depreciation payments during the lease period. You will have to pay throughout your lease period while a financing term is over for good once you pay off the full amount.
Affordability and Enhanced Purchasing Power
Over the years, leasing has become an increasingly popular prospect for purchasers as it allows a person to afford a car which is well beyond their means, thanks to the leasing mechanism. The monthly payments aren’t a big tug on your wallet, and will allow you to go for a vehicle which you wouldn’t have been able to buy or finance directly. Also, after your lease period expires, usually around three years, you get to lease another brand new car. However, if you want to stick to the car you’re driving, you should opt for financing as you wouldn’t have to return it to a dealer once you’re done paying.
Warranty and Projection
Most manufacturers offer great warranty protection and other perks for leased cars for periods coincident to the lease length itself. However, when you are financing, you pay a lot more in maintenance costs, and will have to keep paying for maintenance as the car is your own. The trade-off between having a new car and having your own car is one you will have to make for yourself.
Author: Warren Franklin is a debt counselor and financial advisor at a private consultancy firm operating out of New York. He also runs a blog with a few other financial gurus, where they post articles on several topics, ranging from wealth management to unicorn stocks and services like www.leasequit.com.