What are the Benefits & Disadvantages of Each?
Here is a quick rundown of benefits and disadvantages that accompany both auto financing solutions. There is no clear “better option,” because everyone is facing a different financial landscape, so different folks will be drawn to different financing solutions based on their needs.
Benefits & Disadvantages of Leasing
• When you lease, your monthly payments reflect the cost of depreciation over duration—or, how much the vehicle will “devalue” while you’re in possession of it. This is different from buying with a loan, because with an auto loan, you’re paying for the entire cost of the vehicle. As such, your monthly payments tend to be lower than the monthly payments associated with purchasing.
• Fresh, new vehicle every few years.
• Adore your vehicle? You can opt to buy it at the end of your lease!
• Since leasing usually only happens with new vehicles, there’s a great chance your leased vehicle will remain under manufacturer warranty for the duration of your contract, so repairs and maintenance work could be totally or partially covered for you!
• You must adhere to a prescribed maintenance schedule as laid out in your lease agreement. Failure to follow the maintenance schedule can result in fees at the end of your lease.
• At the end of your lease, if you have driven over the allotted mileage agreed upon in your lease agreement, you can be charged penalty “overage fees.”
• The same principal applies to excess wear and tear.
Benefits & Disadvantages of Buying with a Loan
• With a loan, your monthly payments tend to be higher than with a lease (unless you made a sizeable down payment upfront), but the good news is your payments do count toward equity in your vehicle.
• Because you own the vehicle, you can customize it to your heart’s content! If personal flair is important to you, this can be a huge advantage.
• When you own your vehicle, you’re able to sell it if you choose to do so—you certainly can’t sell a leased vehicle!
• As we mentioned above, while your monthly payments do build equity in your vehicle, monthly payments also tend to be larger than monthly lease payments.
• Depreciation tends to hit hardest for new vehicles, right off the lot. The difference can sometimes be so great that you might need GAP insurance—insurance that covers the difference between the residual value of the vehicle after depreciation and what you own on the vehicle, if the residual value is lower than what you owe.