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Is it better to lease or finance a car?

Is it better to lease or finance a car

When people want to finance car, they don’t consider the leasing part of the car. The few people that know what leasing is do think leasing is better than financing a car. Financing a car also has its own advantages and side effects. The purpose of this article is to answer the question is it better to lease or finance a car? In this article, I will explain the advantages of leasing a car and financing a car.

READ: How to get into finance

I will also explain the two side effects and you would decide if leasing is actually better or financing a car is better. Leasing a car is a situation whereby an individual is rented a car by a seller for a specific period of time usually three years while financing a car involves a buyer and a seller in which a buyer collects a loan to buy the car with the aim of paying back the principal loan and the interest rate with time.

Is it better to lease or finance a car?

Two main differences between the leasing of a car and financing a car is that the lessee (the one the car is being leased to) has a lower down payment and also returns the car to the lessor at the end of the term due. While in financing, the buyer owns the car already and would have to be paying a huge down payment for the car.

So it’s either an individual finance a car with the consequence of making a huge mortgage payment and huge down payment or the individual lease the car for up to three years and consequently pays a lower amount of down payment. The choice is his.

READ: What is a finance company

Advantages of leasing a car

  • Low down payment. In leasing, there is lower down payment for the car. The lessee enjoys the fact that the down payment is very low and does not require interest rate, just the monthly payment which are not usually much. The money used in leasing a car is usually lower than the amount that would be used to buy the car.
  • Chance to own new car after the leasing agreement is due. This is one of the advantages enjoyed by a lessee in which at the end of the leasing agreement, you can always lease another car which are mostly new and this is more enjoyable than buying of the car which you might not be able to buy another car after financing of the car agreement due. Most people that finances car, finances is for more than three years and it’s the same car used when a lessee has started driving a new car equipped with new technology and equipment. At the end of the leasing agreement, you also have the chance to buy the car if you love it or if you can afford the financing. The financing rate after this period will probably be low because the car would have depreciated and the value would have gone down.

Disadvantages of leasing a car.

  • No right to ownership. One of the greatest disadvantages of leasing a car is that you don’t have right to ownership because you would have to return the car at the end of the leasing agreement.
  • Nothing to show for at the end of the leasing agreement. When you lease a car, all the expenses on it can’t be accounted for or anything cannot be shown for it as you would have to return the car to the owner and this because the car is rented to you.
  • High chance of having more expenses than financing the car. You might have more expenses spent on the car than when financing it because you will always return the car and it is not yours that you can keep. Every expenses on the car that is not yours is just not something to do but because of the lower down payment, you decided to lease a car, what you should know is that, the car will always go back to the owner no matter how much you spend on it or you would just have to finance the car.

Advantages of financing a car

One advantage that is basically attached to financing a car is the right to ownership.

READ: What is Mezzanine financing

Disadvantages of financing a car

They have high mortgage payment which can a draw back for you. The APR on a financed car is usually high.

With everything stated above and with explanation, you should decide which one is better, is it leasing or financing?

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Harish Yadav

Finance and market analyst and chief writer on howtofinance. Passionate to read books and articles on marketing and accounting. Also edits other articles and publish them here.

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