Car Loans versus Car Leases

To lease a car or to buy a car is a common question when thinking about purchasing a vehicle. This is not a question that can be answered yes or no as it really does depend on the situation and preference of each individual. Leasing and buying are two different finance methods, one is the financing of using the vehicle and the other is the financing of buying the vehicle. Here are just a few differences to consider before making your decision:

Car Mileage – This is the biggest drawback of leasing a vehicle. Most leases allow usage of 20,000 – 24,000 kms/per year and should you exceed the limit, it will cost you quite a bit of money. You can always negotiate a higher mileage limit but your monthly payment will increase. When you purchase the vehicle there is no limit however the higher your mileage, the lower your cars trade in or resale value will be.

Monthly Car Payments – Your monthly car payments with a lease are lower than the monthly car loan payments and this is because you’re only paying for the vehicles depreciation, interest, taxes and fees and at the end of the lease, there is the option to return the car or buy it out. With a car loan, you’re monthly payments are higher as you’re paying for the purchase of the vehicle plus the finance charges, taxes and fees but at the end of your loan, the vehicle is yours to keep and you will no longer have any monthly car payments. You must decide if it’s more important for you to pay off your vehicle and be debt free for a while even if this means having higher monthly car payments?

Wear and Tear – Most car leases have limits for the wear and tear of the vehicle during the lease term. Upon returning the vehicle, if you have exceeded the limit, you will be charged. When you buy the car there are of course no limits or charges for excessive wear and tear, however, similar to the car mileage this will lower the trade in or resale value.

There are many more factors that you should research. If you want a newer car, not new but a good used car then it may make more sense to save up for that. If you start to pay yourself monthly for a year then at the end of the year, you may just have enough to purchase yourself a reliable used car that you can pay in full and you’ll be left to absolutely no monthly car payments.

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