While taking out an auto loan is the first choice of financing for many car buyers here in the Springs, some prefer leasing their cars instead. But which is the smarter way to finance a car? Buying or leasing? How are they different from each other? This guide shows you the similarities and contrasts between auto loans and leases.
Buying a car through an auto loan allows you to actually own a car, but not until you’ve paid off the loan. That means you need to complete the payments first before the car becomes officially yours.
In a car lease, you don’t take absolute possession of the car because you have to return it to the lessor after the lease term ends. However, you can opt to buy the car from the lessor instead of just returning it.
Loan payments are higher than lease payments. So, if you’re on a budget, you might want to consider leasing a car instead of financing it with an auto loan.
Loan payments are higher because you are paying for the entire sale price of the car. That includes the interest, taxes, and other fees involved. On the other hand, you pay only for the depreciation of the car, along with taxes and other fees, when you lease it. That’s why the monthly payments in a lease are lower than loan payments.
Early payoff is possible in both auto loans and leases. However, you should make sure first that your lender or lessor won’t charge you anything when you terminate the loan or lease contract ahead of schedule. In auto loans, you might be required to pay the prepayment penalty for paying off the loan sooner. It is often called early termination fee in leases.
What if you want to get rid of your current car so you can drive a new one? If you have bought the car through an auto loan, you can either sell it or trade it in at a dealership. But you’ll have to deal with the hassle and nitty-gritty of selling your car. If you’ve leased it, all you have to do is return the car to the lessor and walk away.
With an auto loan, you can drive the car as much as you want—unless you care about its trade-in and resale value in the future. When it comes to lease, the lessor unfortunately puts a cap on the miles you can drive. In most cases, lessors allow you to drive the car for a maximum of 15,000 miles per year. What happens if you exceed? You will have to pay the lessor for the excess miles. But don’t worry, you can negotiate for a higher mileage limit.
Excessive Wear and Tear
You don’t have to worry that much about wear and tear on the vehicle if it’s on a loan. But in the case of lease, you have to make sure the vehicle doesn’t incur much wear and tear, at least not beyond what the lessor considers as normal. Otherwise, the lessor may charge you for the excess wear and tear.
Since the car is yours when you’re on an auto loan, you can do any body or detailing work you want on it. But if it’s on a lease, you might not be able to do that as freely. Lessors want their vehicles back at a still saleable condition and appearance.
But if you insist on customizing the vehicle while it’s with you, you would have to remove all the modification work before returning the vehicle. If there are damages incurred in the process of customizing the car, you have to pay for the fixing.