When buying a new car, people are often faced with the dilemma of whether to lease or finance it. People usually go for a lease when it is impossible to procure the full amount needed to buy a car or if they do not want to get into the hassles of procuring an auto loan. Read on to understand the pros and cons of financing vs. leasing a vehicle and make an informed decision.

Before debating the pros and cons of financing vs. leasing a vehicle, it is important to know what exactly the terms mean. Financing a car simply means you are buying it either by paying the full amount or by taking a loan. Leasing, on the other hand, means procuring it for a certain period, after which you can return it or extend the lease agreement.

Pros of financing 

• Ownership: At the end of the loan term, ownership transfers to you. Most auto loan terms are for 4-6 years, so you will be free to drive your car without worrying about future payments after that. You can also sell or trade it for a newer model.
• Freedom: Financing your vehicle allows you to drive your car for as many miles as you want and upgrade it with any customization and trim you desire. There are also no penalties for wear and tear after the loan is cleared, unlike in leasing.
• Lower insurance premiums: The monthly insurance premiums for financing are lower than if you are leasing it.

Cons of financing

• Higher monthly payments: When discussing the pros and cons of financing vs. leasing a vehicle, it is important to note that the monthly premiums for an auto loan are higher. Also, a down payment is required.
• Depreciation of the car’s value: You’ll be paying the full value of the car over 4-6 years, and repair costs after warranty expiration will fall on you. Also, significant damage might cause its value to decrease, and the depreciated value can be lower than what you’ve to pay.

Pros of leasing

• Monthly payments: The monthly payment sum is calculated with the depreciated value of the car, so it’s generally less than the monthly installments for an auto loan.
• Warranty: Usually, the lease period is shorter than the average vehicle loan term, so the warranty of the car remains throughout. This means you don’t have to spend much on repairs and maintenance.
• New car option: After the lease contract is over, you can choose to buy the car, lease it for some more time, or lease another car instead. You get to move on to a brand new vehicle and not worry about lengthy sale processes.

Cons of leasing

• Limitations: You don’t own the car, so you can’t make any modifications to it. Also, there are mileage limits you need to follow, but this may be negotiable.
• Fees and penalties: Constant worry about extra payments like security and license fees or penalties for wear and tear accompany leasing contracts. The sum of these payments might even exceed the actual value of the car sometimes.