To make sure you are comfortable paying for your vehicle, it's essential to understand which scenario—leasing or purchasing—is right for you.
Leasing a Vehicle
When you lease a vehicle, you don't pay for 100 percent of the vehicle; you just pay for the portion of the vehicle's value that's used over the term of the lease plus rent charge, taxes and fees. Unlike purchasing a vehicle, you never own the vehicle when leasing.
Pros of Leasing
- Generally, your base monthly payments are lower than if you purchased the vehicle
- You have the option of purchasing the vehicle at the end of the lease
- There are no trade-in hassles at the end of the lease
- You may be eligible for special deals or discounts
Cons of Leasing
- There are mileage limits, typically 10,000 to 15,000 miles per year. If you exceed the limit, you may pay an additional charge for each mile you go over the limit
- You may be charged excess wear and use charges
- Since you don't own the vehicle, you don't build equity
- You may be charged an acquisition fee
- You may be charged a disposition fee
- If your driving needs change, it can be expensive to terminate a lease early
Financing
When you finance a vehicle purchase, you obtain a loan and agree to pay the amount you borrow, plus an agreed-upon finance charge, over a period of a time.
Pros of Financing
- You will eventually own the vehicle
- There are no mileage limits
- Submitting your payments on time may help you establish a good credit history
- Financing helps you purchase a vehicle
Cons of Financing
- Depending on the term, finance payments are generally higher than lease payments
- Resale value of the vehicle can be significantly lower than the purchase price at the end of your term
