Should You Lease a Car or Get a Loan?

When shopping for a new car, there are multiple factors you need to consider. Determining the right financing option is one of them.

Leasing a car and getting an auto loan both have advantages and disadvantages. Considering your circumstances and needs will help you make an informed financial decision. It’s also important to understand how leasing a car differs from getting a loan, what fees are involved and how to get auto insurance.

Buying means to purchase a car and acquire ownership by paying in lump sum or installments. On the other hand, leasing refers to an agreement that allows a person to use the lessor’s vehicle for a certain period in exchange for periodic payments.

Determining whether you should lease or buy a car requires understanding your options. Take some time to research and learn the differences between the two.

Below are some of the major differences between leasing and owning a car that you need to:

Leasing a car simply means renting a vehicle from a dealership for a certain period and mileage limit. You gain the right to drive the vehicle in exchange for monthly lease payments. Although this option can be a good idea, it’s not always ideal.

Your circumstances will determine whether you should lease a car or not. Make sure you consider the actual cost of leasing a car, its pros and cons, when it can be the best option and how to get insurance.

Monthly lease payments cost an average of $540 in the second quarter of 2022, according to Experian . Actual costs may vary depending on the vehicle model, term and mileage limit. There are also other fees the lessee should pay, such as acquisition fees, initial payment and security deposit.

The table below enumerates the most common fees and what they cover:

Weighing the pros and cons of leasing a car is an important step you need to take to make sure this is the best option for you. For instance, leasing may come with lower monthly costs. However, there are more restrictions. Consider your needs and determine if leasing benefits outweigh the drawbacks.

Leasing may not be the first choice of many when thinking of getting a car. But there are certain instances when it makes the most sense. For example, ex-pats, older adults, individuals with a fixed monthly income and those who tend to change cars quickly may find leasing beneficial.

If you find yourself in any of the following situations, you may want to consider leasing.

Auto insurance provides financial protection against possible considerable expenses in the event of an accident. Most states require drivers to meet a minimum coverage requirement. However, some individuals who plan on leasing a vehicle may find car insurance a bit confusing.

The best car insurance will depend on specific factors, such as location, age, gender, credit score and driving history. Requirements for getting a policy may also vary depending on the state and leasing company.

Below are some common insurance requirements for leased cars.

At the end of the lease term, the lessee is given four options.

If you decide to end the lease early, whether due to a job loss, change in income or moving to another location, you may be subject to early termination rules per your lease agreement. Here are some of the possible options for you:

Keep in mind that early termination of a car lease may come with a fee. Make sure you discuss this with your lessor.

The main benefit of buying a car is ownership. Unlike car leases, the buyer gains full vehicle ownership after completing the payments. For some, this means paying a huge lump sum upfront. Others may opt for a loan and installment plan. No matter the financing, finding the right price and car is crucial.

Additionally, it’s essential to consider all fees involved, the pros and cons, and when it makes the most sense to purchase a vehicle.

Being a car owner comes with various expenses. Aside from the price of purchasing the vehicle, other payments are involved.

The average cost of car ownership is $9,282 per year or around $773.50 per month. Those who choose to finance their purchase through an auto loan may need to pay an extra $667 per month, according to Experian.

Below is a breakdown of the common fees car buyers need to take note of.

Similar to leasing, buying a car comes with advantages and disadvantages. Depending on your needs as a driver, the benefits may outweigh the drawbacks. The table below enumerates some of the major pros and cons of buying a car to help you get started.

Evaluating your financial situation and specific needs is the best way to determine if buying a car makes sense. A vehicle can be an expensive purchase. It’s important to ensure that it’s the best possible solution for you.

Buying a car may be better than leasing if you see yourself in the following situations.

Before choosing a vehicle, buyers should determine the best way to finance their purchase. Some individuals pay the full price of the car in a lump sum. This is a good idea if you can afford to pay cash upfront. Otherwise, you may need to take out an auto loan.

Here’s a simple guide to help you navigate auto loans.

Choosing the right auto loan company can be challenging, especially for first-time borrowers. Doing your research, shopping around and knowing what factors lenders consider can help you find the best deal.

Choosing between an auto loan or a car lease can be a challenging experience. Knowing what factors to consider can help you determine the more appropriate option. Comparing costs is a must, but understanding your needs and financial situation is also crucial.

Below are some tips that may help you decide between the two options.

There are various terms used in the car leasing industry. Below are some terms and definitions to help you better understand leasing.

The right resources can help you better understand your options and make an informed decision about owning a car. You can find the following relevant resources to help you determine the best option for you, your budget and your circumstances.

Car Ownership

• Consumer Reports: Get tips on effectively negotiating the cost of a car.
• Edmunds TMV: Compare the true market value of different vehicles based on year, make and model.
• Federal Trade Commission: Learn from consumer guides on buying a new car and purchasing a used car. Find out more about financing a car purchase using the commission’s Buckle Up: Navigating Auto Sales and Financing report.
• Kelley Blue Book: Check a car’s value, find vehicles for sale or get free dealer price quotes.
• USA.gov: Find out how to get a driver’s license and register a car. Get tips on how to file complaints about a car, car rentals and auto loans.
• Car buying and comparison sites: Shop around and compare car costs by visiting car buying sites like TrueCar and CarMax.

Auto Insurance

• Coalition Against Insurance Fraud: Get updates on different auto scams and insurance fraud.
• Insurance Information Institute: Learn about different types of insurance. Access useful data and insights on the auto insurance industry.
• National Association of Insurance Commissioners: Get basic information about auto insurance, the different coverages, your responsibilities and how to file a claim.
• National Insurance Crime Bureau: Be informed about auto insurance fraud and theft. Get tips to prevent scams when buying a vehicle.
• State Department of Insurance: Visit your state’s department of insurance website and find out the minimum auto insurance coverage requirements. Some states even include a list of companies offering auto insurance, such as Massachusetts and California.