Aside from the fortunate few with several thousands of dollars in their wallets, most of us cannot buy a car upfront. Both leasing and taking out auto loans are efficient ways to purchase automobiles without having to fork over an entire life’s savings.
So which one is right for you? Consult our guide on Leasing vs. Loans to find out!
There are many advantages to leasing a car. With good credit, upfront payments are low and monthly payments are cheaper than monthly auto loan payments. As most cars are under warranty for three years, your leased vehicle will be covered for mechanical damages for the duration of its Edmunds.com-recommended three-year lease. What this means: low down payments, low monthly payments, and low maintenance costs. Hooray!
Lease enthusiasts also enjoy the ability of driving three cars in the span of time others typically drive just one. In addition to enjoying the cache of a brand new car every few years, leasers are less likely to need major repairs.
As you already know with renting vs. home owning, renting is more affordable on the short term, but home owning is the better investment. Leasing vs. buying is very similar to renting vs. owning; when owning, after several years, you will be able to stop making monthly payments. While your car’s value will inevitably decrease in price over the years (unlike with home owning), you will still be able to drive the vehicle for the duration of its life or sell it for a reasonable sum. When the lease is up, you will either need to lease again or make the car purchase you had previously been putting off. As long as you are leasing, you are making payments. In this sense, leasing is the more expensive option for the long term.
Auto loans allow you to pay off your new or used car in monthly installments. Hopefully, over the course of paying off your loan, your income will increase, and the fixed monthly rate will not be as much of a burden. Paying off loans in a timely manner will build your credit history and can help you prepare for the process of buying a house. In the long run, buying a car will always save you more than taking out a lease.
As always, with loans, you will inevitably be losing money on interest, and failure to make timely payments will result in nasty strikes against your credit. An auto loan means a contract, and if you lose your job or come into financial difficulty, you will still be required to make monthly payments. You will also be unable to sell your car during the years in which you are paying it back. On the opposite end, if you come into the means to pay off your loan all at once, you are still slapped with a prepayment charge.
Of course, you have to decide what fits best with your particular lifestyle. If showing off a brand new car every couple of years is important to you, then maybe spending a bit more on a lease will be worthwhile. If you plan on settling down wherever you are and eventually owning a home, taking out an auto loan will probably be more suitable for you. Ultimately, the decision is yours, but even if you feel strongly either way, be sure to do your research before committing to a contract!