Car Loans vs Leasing

If you are one of the 75% of consumers who have to finance a vehicle purchase, you might be pondering if it’s better to lease or to buy an automobile. Car loans and leasing each have their own set of advantages and disadvantages. It all begins with lifestyle.

Automobiles and Lifestyles

One of the intangible factors of this decision begins with whether or not you really care about owning a car. If you like to have a new vehicle every few years, are comfortable with a constant car payment and are not concerned about car ownership, then leasing might be for you.

If you see a car as mainly transportation as opposed to a lifestyle statement and like the idea of paying off a car so you have an asset and no payments for awhile, then owning a car might suit you better.

In fact, you could feel differently about this depending at what point you are at in your life. When you’re younger, leasing may be more appealing. As you get older, you might not care about lifestyle as much (or vice versa!).

Financial Advantages of Leasing

Leasing can be very appealing financially. The down payment is low so there’s no great cash outlay. The monthly payments are low and the maintenance costs are next to nothing (especially with a three year lease). You can walk away from the car at the end of the lease term and simply get another vehicle (you can also purchase the car, if you like).

The disadvantage is that you’ll always have a car payment.

Financial Advantages of Car Ownership

The advantages of owning a car are:

• At the end of the loan term you own the vehicle free and clear. You can borrow against it. You can include it as an asset and not a liability. You can even trade it in as a down payment on a new car!
• If you decide to stay with the automobile for awhile, you will not have a car payment. This puts more money in your pocket for other things.

The disadvantage is that your payments will be higher since you’re paying off the entire cost of the car (With a leased vehicle, the payments are for the amount of depreciation anticipated during the lease period). You also will incur more maintenance costs as the car ages.

Overall, to take out a car loan or to lease a vehicle is a personal decision that is decided by lifestyle preferences as much as it is by dollars and cents.