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Aside from paying full cash price for a vehicle, the two main options for buying new cars are leasing and financing. In either case, you will need to make monthly payments after acquiring your car. However, there are some big differences between the two options and depending on your situation, one option may suit you more than the other.
Ownership of the Car
The biggest difference between leasing and financing a car is the ownership of the vehicle. When you finance a car, the lender holds what is known as a lien against the car. After you pay the loan off, the lien is released, the title is put into your name and you become the owner.
On the other hand, if you choose to lease your new car, you will need to return the vehicle to the dealership after your lease is over. As such, your lease payments are much like rental payments. You may have the option of purchasing the car at the end of the lease but the payments you previously made will not go towards the full price of the car.
For most new cars, leasing is much cheaper than financing. Because of this, you can typically afford a more expensive car if you choose to lease rather than finance. Thus, if you cannot afford high finance payments, leasing is an attractive option. Furthermore, leasing allows you to get a different car each time your lease expires.
On the other hand, if you like the car and want to keep it, financing may be the better option. However, keep in mind that if you finance, you will be responsible for such expenses as taxes, tags and maintenance. Finally, most leases have mileage restrictions and if you drive over your allowed mileage, you will need to pay additional fees.
What is Right for You?
As you can see, there are many differences between leasing and financing a car, and they both have their pros and cons. One last thing you may want to consider before choosing which option is best for you is how often you actually drive. If you do not drive much, leasing may be a good option.
Yet, if you drive frequently and/or want to own your new car eventually, financing would likely be the best option for you. Overall, it is best if you weigh the pros and cons of each option before choosing and choose the one that best suits your needs and financial situation.