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Choosing to Lease or Loan a Car

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Is it time to buy a new car? It’s exciting but daunting, isn’t it? Likely, you won’t be able to pay off that baby in cash — I know I couldn’t, and my new ride wasn’t exactly “new” either. So, like me, you’re probably trying to decide whether you should lease or buy the car outright. For the record, I went with buying.

Both methods involve monthly payments. Think of leasing as rent — you don’t own the car after you finish paying for it — and a loan is, well, a loan like any other (mortgage, student, etc.). They both, however, have many differences that may push you to choose one or the other.

Monthly Payments

When it comes to lower monthly payments, a lease does win. Because you are only making payments on the difference between the start value and residual value of the car rather than the entire price of the car, lease payments will be lower — sometimes up to 60 percent. 

However, when you pay off a loan, your payments stop, and you carry on with your trusty steed. Oh, how glorious it is not to have a car payment anymore. When a lease has ended, you return the car, after which you need a new one, and the payments start all over again with no break in between. 

Ownership and Equity

When the term of your lease is up, you must give the car back to whomever you leased it from, or you can pay the rest of the amount and own the car, though it’s usually more expensive than if you took out a loan upfront. When you loan your car, at the end of your term, you own it, and you now have equity in that vehicle — one of the main reasons I personally loaned my car.

Maintenance

Because you’re paying for a shorter term when leasing, your car will likely still be under warranty, so you won’t have to worry about maintenance costs. With a loan, you have only until the warranty lasts (typically three to 10 years) before being responsible for any maintenance and repairs. This is one aspect of a loan I’m not fond of, as I now own this 11-year-old gem with an expired warranty, so I’m loathing the day she needs repairs.

Mileage

When you loan a car, because you’re in the process of owning it, you won’t have any limitation on your mileage. A lease agreement, however, often stipulates that only a certain amount of miles can be driven, and if you go over that mile limit, you could end up paying a hefty fine. If you have a lengthy commute, this is something to keep in mind.

Wear and Tear

Again, when you finish paying a car loan, you own it, so any wear and tear will be yours — and yours to keep or fix up. With a lease agreement, your car is evaluated for wear and tear, and if an inspector sees any damage that is deemed to be “excessive,” you will pay a fine. I was the victim of a hit-and-run, which left me with one scrape on an otherwise well-maintained car. Excessive? I’d rather not take the chance, especially when it wasn’t even my fault.

Keep in mind these five aspects of leasing versus loaning a car when it comes time to make a decision about how to finance your new (or used) car. You’ll be saddled with this decision for the next however many years, so make sure that choice is the right one.

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