Whether you are planning to get a vehicle on lease or finance, there are many things that you need to keep in mind before you go ahead. This article looks at the differences between financing and leasing a vehicle to understand the things to consider before making a decision.
Leasing vs financing
When we consider leasing vs financing a vehicle, we need to first understand the basics. Leasing involves taking a vehicle on lease for a duration of a few years. Every month you have to pay the lease amount and use the car. There are restrictions on how much you can use the car. At the end of the lease period, you can return the car and take a new car on lease.
Financing is buying a car by taking a loan. You take a loan from a lender and repay every month by paying a repayment amount. The repayment amount includes the loan amount and interest. You will need to keep making payments until the loan is cleared.
There are a few things you need to consider before deciding if you want to lease or buy a vehicle on financing. You need to keep these considerations in mind to help you make a proper decision. The following are some of these points you need to consider:
Consider your financial situation
One of the main factors to help you decide is to take a hard look at your finances. If you have money to make monthly payments for the loan and want to own the vehicle, go for financing. If you have money only to make payments for the monthly lease, then choose a lease.
In either case, you need good credit to go ahead. You also need insurance. In the case of leasing, you can go for basic insurance to reduce expenses. While down payment is a must for financing, you can get it reduced or even waived while leasing.
Consider your usage
How you use the vehicle is a major factor to help you decide which option to choose. If you drive for short distances, then leasing is a good option. If you drive longer distances, then you may exceed the mileage limits fixed by the leasing agency. In such a case, you need to pay more. If you drive a long distance once a month, you would do well to choose buying a car through financing.
Consider the tax impact
If you lease a car, you can deduct the lease amount, whereas in financing you can only deduct the interest paid. Discuss with your CPA before deciding which option is suitable.
If you take good care of the car, leasing should suit you. Else, damages to the car like scratches can turn out to be costly while closing the lease. You will be charged for wear and tear when you lease a car, so keep this in mind before deciding.