Loan vs. Lease

Choosing between an auto lease and an auto loan is one of the biggest decisions you must make when buying a new car. Some buyers are attracted to the short-term savings of a lease, while others are drawn to the promise of ownership that comes with an auto loan. Read on for a discussion of the pros and cons of buying vs. leasing a new car.

Auto Leases: The Bright Side

The biggest upshot to leasing a new vehicle is that you will most likely be able to afford a more expensive car than you otherwise would. Auto lease payments tend to be smaller than auto loan payments, which gives you the ability to buy a bigger and better car. Additionally, leases usually only last for two or three years, so you can upgrade to a late-model vehicle much more frequently. Finally, most leases do not require a down payment. In this way, you can avoid the large cash outlay you would have with a car loan.

Auto Leases: The Downside

Since the economic downturn, many automakers have either scaled back their leasing programs or eliminated them altogether. This means aspiring lessees have fewer options and incentives from which to choose. Moreover, leases may offer short-term savings, but they cost more in the long run because you essentially have a car payment that never ends. Lastly, leases impose restrictive mileage limitations on drivers that will cost you dearly if you exceed them.

Auto Loans: The Bright Side

When some automakers recently abandoned their leasing programs, many of them began to offer more affordable auto loans with better incentives. In other words, you have a good chance of finding an auto loan that is as cheap as an auto lease these days. Furthermore, once your auto loan is paid off, you will have full ownership of your vehicle and can enjoy the freedom of not having a car payment. Because the life of the average vehicle extends far beyond the term of an auto loan, an auto loan is almost always the cheaper option long term.

Auto Loans: The Downside

One of the biggest disadvantages of auto loans is the down payment. To save up the recommended down payment of 20 percent, you might have to put off buying a new car for some time. In addition, the cost of the vehicle can limit your selection considerably. Many buyers also grow tired of their vehicles after a few years but cannot upgrade to a better model until the loan is fully paid. This could mean driving the same vehicle for 3-7 years.