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      June 23, 2018

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Auto Loans Versus Auto Leases

Auto industry statistics indicate that 80 percent of auto buyers either pay cash for their purchase, or finance it with a loan issued either through the dealer or a private financial institution. However, there is a small percentage of people who do not prefer to buy a vehicle, but rather prefer the option of leasing.

If you are in the market for a new automobile, you may be wondering whether owning or leasing is the best option for you. The choice depends on a number of factors.

Some of the reasons why people prefer buying over leasing include:

  • Leasing hidden costs. First and foremost, leases eventually must be returned, and lessees can find themselves paying out of the nose for hidden costs they weren’t expecting. One such cost is mileage. Most leases come with a pre-determined mileage limit. Lessees who exceed the mileage limit for the term of their lease will end up reimbursing the auto dealer the current mileage rate per mile for every mile beyond the lease’s limit. Most three-year leases provide a 36,000 mile limit. For the average driver, 12,000 miles per year may not be enough, particularly if you travel for your job.
  • Maintenance. Another benefit to buying versus leasing is that even while leasing, you are responsible for the maintenance of the vehicle. While most leases come with warranties that will cover the cost of most major repairs, those leases do not extend to routine car care such as replacement tires/tire rotations, oil changes or other fluid replacement. Essentially, the lessee will be paying to maintain a car that he will be returning for someone else to enjoy later.

Some of the reasons why people prefer leases over ownership include:

  • Lower monthly payments. Because the vehicle is technically being “borrowed” for an agreed-upon period of time, rather than being purchased outright, monthly payments tend to be lower on leases. The payments also are lower because the lessee is only paying for the depreciation of the vehicle’s worth, rather than the value of the entire vehicle. However, at the end of the lease term, the lessee doesn’t own anything.
  • Driving the latest model. Some people always want to be seen in the latest model car. They’re willing to put up with a constant monthly lease payment so that they can trade their car in every 2 or 3 years for a newer version. While people who choose to own a car look forward to not having a car payment, these individuals are comfortable with budgeting for lease payments forever.

No matter which option you choose, make sure you fully understand the benefits and drawbacks to each of them before signing on the dotted line.

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