When you are in the market for a new or used car, one of the most significant decisions you’ll have to make is whether to lease or finance the vehicle. Both options have benefits and drawbacks, so it can be challenging to decide the better option for you. Let’s discuss the pros and cons of leasing vs. financing a car and help you decide which option is best for your needs.
What’s the Difference Between Leasing and Financing?
Leasing and financing are both ways to pay for a car, but they work differently. According to Lantern by SoFi, “you are essentially renting it from the dealership or lender by leasing a vehicle. You make monthly payments, and at the end of the lease term, you have the option to buy the car or turn it in and walk away.”
Financing a car means you borrow money from a lender to purchase the vehicle. You will make regular payments over a set period – usually between three and five years – and then own the car outright.
What are the Advantages of Leasing a Car?
Leasing a car has several advantages over financing. First, leasing tends to be cheaper than buying it outright. You will typically have lower monthly payments and may not need a down payment.
Leasing also allows you to drive a better car than you could afford to buy. Since the lease payments are spread out over time, you can afford a more expensive vehicle than paying for it all at once. And since leases come with mileage limits, you don’t have to worry about going over your allotted miles and being hit with extra charges.
What are the Disadvantages of Leasing a Car?
There are a few drawbacks to leasing as well. If you decide at the end of your lease that you want to keep the car, you will likely have to pay a very high buyout fee. Leases also come with restrictions on how you can customize or modify your vehicle. And if you go over the mileage limit or damage the vehicle, you will have to pay extra fees.
What are the Advantages of Financing a Car?
Financing has several advantages over leasing. First, financing allows you to purchase a car for less than its sticker price. You may be able to get a lower interest rate than what is offered through leasing, and you won’t have to worry about excessive wear and tear charges.
Refinance auto loan if you want more flexibility in modifying your car. There are no restrictions on modifications like leases, so you can add aftermarket parts or change the color of your car without penalty. And if you decide to sell your automobile before the end of the loan term, you can typically recoup most – if not all – of your original investment.
What are the Disadvantages of Financing a Car?
The biggest disadvantage of financing is that it can be more expensive in the long run than leasing. You will have higher monthly payments, and you will be responsible for depreciation costs over time. If you miss a payment or go over your loan limit, you may also have to pay late fees or penalties.
So, Which is a Better Option for Me?
There is no one-size-fits-all answer when deciding whether leasing or financing is better for you. It depends on your individual needs and budget. If you want to drive a better car than you can afford to buy, lease it. If you don’t mind making higher monthly payments and want more flexibility regarding modifications, opt for a refinance auto loan. Talk to your lender or dealership about the best option for you, and they will help you make the right decision for your needs.