To loan or to lease? It’s a crucial question when you’re deciding on financing a new car. Learning about each option can help you make the choice that’s right for you. Most people intuitively understand the difference between a car lease and a loan. But let us briefly define to you the two forms of car financing.
Car Loan: With a car loan, you borrow money from a financial institution for a certain period of time, usually from two years up to 72 months. Once you’ve paid off the loan, you own the car.
Car Lease: A lease is a financial arrangement to pay for the use of a vehicle over a specific period of time. Leasing is different than renting. When you lease, you pay for the part of the vehicle that you will use – which translates, money-wise, into the amount the vehicle will have depreciated by the time you turn it back in.
While buying a car with a loan, or with cash up front, is fairly straightforward, leases can offer some benefits that may appeal. After weighing up the advantages and disadvantages of both the forms of car financing, we have come up with the five most obvious reasons that a car lease takeover is better than loaning it. Here they are:
Car Loan Vs. Lease: Why Lease?
- Long-term commitment is an option
When you loan a car you plan to keep it for a long time, but considering the change in technology in automobiles, you won’t want to own a car for life. Leases are usually short-term. Many leases are for relatively shorter periods of 39 months. Some are even shorter. By leasing, you’ll always be driving a new car. Leases are usually structured to stay within the warranty period. Either way, the car will be under the factory warranty for most of your lease, so you don’t need to worry about expensive repairs. Similarly, when you loan a car it gets older over time and the depreciation cost of the car over the long-term renders its market value even lower.
A car lease takeover lets you be flexible. You have the car for a relatively shorter period of time. When the lease is over, you bring it back. When you choose a lease over a loan, there are no worries about selling the car or trading it in. If you like it, you can buy it by paying off the remaining balance which is, sometimes, for even less than the residual value agreed on in the contract.
Something to decide when you debate the car loan vs. lease question is what to do with the car when the lease ends. Leasing offers you greater flexibility at the end of your contract. You can return your vehicle, extend your lease, purchase your vehicle or possibly even trade it in on a new lease or purchase, depending on its value. For example, used versions of fuel-efficient vehicles like the Toyota Prius gained in value during periods of high gasoline costs.
- Value for money
In terms of value for money, the cost of leasing a car is cheaper compared to the cost of monthly payments in loaning a car. A vehicle that could cost $500 per month for a loan payment might lease for $300 a month. This is preferable if you do not have the means to maintain a car for a long time and do not want to cash out a lot since there’s practically little to no down payment needed in some cases.
Another reason why leasing is better is that it lets you pick from two attractive options; lease an average car for a low cost, or lease a more expensive one for a reasonable monthly price. (Almost half of all luxury cars are leased for this very reason). You might literally lease a Cadillac for the payment you’d make on a Corolla.
A car lease takeover from a leasing platforms can also save you money.
- Financial Trade-off:
There are some notable financial trade-offs that you enjoy when you lease a car. If you have another investment, such as a business or stocks, the lower down and monthly payments on a lease vs. a loan can free up your assets. This way you can invest elsewhere over the lease period rather than plowing the money into your car. In some cases, leasing may have tax advantages if you use the vehicle for business (and can prove it if you’re audited). Similarly, a novated car lease agreement (salary packaged car) can be an economical option with potential tax benefits. However, tax laws are complex so you should check with your accountant.
Additionally, leases are designed to help you minimize your upfront and cash outlay. In many lease contracts, you may need to just pay a security deposit and the first month’s payment. All these options may end up saving you a considerable chunk of money that you can use elsewhere.
- Car Lease Takeover:
Mileage is strictly limited by the terms of most leases, something to remember on the lease vs. loan question. But consider this, your needs have changed, or you simply don’t like your leased car anymore. You leased a luxury SUV that gets 14mpg, but now you have to commute 100 miles a day. Or you got a two-seater, but ten months into the lease you had twins. In either case, you have to break the lease and you would be thinking that if you owned the car, you could sell it privately or trade it in towards the car you want. With a lease, you can nost only do that, but you can also think of a car lease takeover. There is an online marketplace to swap car lease and it’s called Quitalease.com. This website offers you a platform to sell and buy a lease contract. This gives you more liberty than loaning a car.
Conclusion: So should you lease or get a loan? Loans and leases are clearly different ways to drive a car and both are means of spreading the cost of an expensive automobile over time. There are many other factors that play their role than the one discussed above. For example, no matter whether you choose to lease or get a loan, the first thing the dealer will look at is your credit rating. But considering the financial gain and the flexibility to operate within a lease, leasing wins here.
In the end, wherever you stand on the car loan vs. lease question, it’s up to you to negotiate the best price on the vehicle first.
So if you’re in the market for a new car or a crossover, should you be buying or leasing? Loans and leases are clearly different car financing methods. While buying a car is often more appealing to those motorists who like to keep their vehicle for longer, the financial gain and the flexibility to operate makes leasing a more feasible option if you want to keep a car for a relatively shorter term.