Pros and Cons of Car Loans vs. Car Leases

As we start to approach the holiday season, the last thing you want to do is worry about your best financing options. Especially with all the great discounts you want to take advantage of out there!

If a new car is one of your gifts this season, or even just a necessary purchase, you’re probably looking at your options and wondering where you want to start. With all the other preparing and organizing you need to do, digging through mounds of research is not only stressful, it can also be a waste of time. time.

However, it’s still very important that you do your research so you don’t end up stuck in a car loan you don’t like or a car lease you can’t afford. So before you burn out, here are the pros and cons of car loans vs. car leasing. Both are great options, depending on what you want out of your car and out of your future.

Car Loans- Car loans allow shoppers to acquire a certain amount of money with the intent of paying back the lender with interest. In other words, an approved car loan shopper takes a certain amount of money with the promise to pay back the money over a fixed period of time. Once the auto loan is paid back to the lender in full, the borrower becomes the full owner of the car.

The Pros:

The ideal car loan applicant wants to own a car for a longer period of time but may not have the savings to fund the full transaction at the point of purchase. Car loans give the borrower more flexibility than other purchasing options. The terms and rates associated with a car loan vary per borrower, so you’re not getting a cookie cutter agreement. A car loan finances your individual needs and requirements. With an approved car loan, you walk into dealerships with the buying power of a cash buyer, giving you much more leverage over price negotiation and purchase limit. Lastly, car loan interest rates are at their lowest now than they’ve been in years, so this winter is a great time to take advantage of this option!

The Cons:

The borrower does not own the purchased car in any legal form until the loan has been fully paid back to the loaner. Failure to pay back the loan company automatically gives the loaner the right to take your vehicle back at any time. Plus, defaulting on car loan payments will lower your credit score. Before you do any borrowing, whether it’s auto, home, etc., be sure to find a trustworthy auto loan calculator to help you through the financial budget process. There are many of these calculators online from trustworthy companies that will help you decide if you’re at risk at defaulting on a car loan.

Car Leasing - Car leases are often compared to borrowing your friend’s car for a monthly fee for a set period of months. Leases usually span from one to three years. At the end of the lease period, the purchaser gives the car back to the dealer.

The Pros:

The ideal car lease shopper wants to own a car for a shorter period of time, and may not ever want to own the car. This is a great option for car shoppers who like to own new car models, and/or want a less permanent transportation option. At the end of the driver’s lease period, he or she can trade the leased car in for a new model (this would require you to enter into a new lease agreement or find another financing option, however) instead of having to maintain a vehicle in order to prolong its quality. If at the end of the lease you decide you want to own the car, the dealer will often give you the option to buy the car at a discount because of its depreciated value.

The Cons:

Prolonged car leases may end up costing a lot more in the long run because the agreed lease terms are not necessarily fitted to you individually. It is more fiscally advantageous for drivers to buy a car if they want to use it for more than two years. Also, there are milage limits, usage limits, etc. to car leases that may or not meet your lifestyle, so be sure to check up on your lease terms and compare them to buy prices before you sign.

Author Byline: Erika Timmers is freelance writer working with She’s an expert in consumer finance and finding the best deal online. If you’re looking for a new car loan or refinancing your current car loan, consider a free quote from Car Finance.

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