Buying a Vehicle: Leasing vs. Financing

Know your options before heading to the dealership

When you’re shopping for a vehicle, there are lots of choices to make — car or truck, new or used, domestic or imported, and so on. And along with choosing a vehicle, you’ll also have to decide how to pay for it. 

Typically, paying for a vehicle comes down to a choice between leasing it or financing it with an auto loan. Each option has benefits and drawbacks, so it’s a good idea to weigh them carefully and think about what’s best for you.

Leasing basics

When you lease a car or truck, you’re essentially agreeing to rent it for an extended time, a lot like you might do with an apartment. You get to use the vehicle every day, but it doesn’t belong to you, and there are certain limitations on what you can do with it. At the end of the lease agreement, you typically give the vehicle back to the dealership, though you may once again have the option to buy it.

Leasing generally involves lower monthly payments than financing with a loan, which means it can seem more affordable in the short term. The tradeoff, however, is that you don’t own the car, so you can’t recoup any of your payments by eventually selling the vehicle or trading it in. Because of this, it can be easy to end up in a cycle of leasing one vehicle after another and always having a car payment.

Financing basics

On the other hand, when you finance a vehicle, you’re taking out a loan to purchase it; in this way, it’s more like buying a house than renting an apartment. When you buy a car with financing, you typically pay more per month than you do with a lease, and you may need to make a down payment. The advantage is that once you’ve paid off the loan, you keep the vehicle; it’s yours to sell, trade in, or keep driving (payment-free).

Over time, it’s typically far less expensive to finance a vehicle with a loan than to lease it, even when factoring in the cost of repairs. However, there are other considerations to keep in mind apart from long-term cost, such as how much you drive, what type of vehicle you’d like to have, how often you want to change cars, and how much you’re willing to deal with repairs and maintenance. Ultimately, it all comes down to deciding what’s most important to you.

The information provided here is general in nature and may not apply to your specific situation. MCCU does not provide legal, tax, or other advice. Please consult with your own professional services provider for more information on these matters.