Auto Loan or Auto Lease

Classified as: Personal Finance

When purchasing a car, there is a lot of important financial decisions to consider. You have to clearly understand what is it that you want, a long term benefit or a short term one. For both long term and short term, there are two options to choose from, either an auto loan or an auto lease. In order to choose between the two you have to know the main difference between them.

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An auto lease does not mean loan, rather it means the payment induced for the “usage” of a vehicle, as in contrast to auto loan which means payment induced for the “purchase” of a vehicle. An auto lease is actually a short term plan, where you have to pay for using the car. In auto lease you can opt to have a new car every two to three year and you will be charged instead on the extra mileage that is out of the prescribed limit, while leasing for a car.

For people who do not need a car for a long period of time and just for short term use, leasing works very well. The only thing to be concerned about is the amount of bill payments, security fees etc and at the end of a time limit, you can either return the vehicle or buy it at its depreciated resale value.

This can clearly be understood through an example. You lease a $20,000 car, and after two years the value of the car drops down to $13,000, so all that you have to pay for is the $7,000 difference, along with finance charges and any extra fee. Though this sounds simple, there is alot of internal payments that end up getting you into more expenses rather than with a simple loan.

In an auto loan all that you have to do is purchase the car at an agreed value and borrow the money from a bank, personal creditor or even get the car on monthly installments. A down payment is given and then all you have to do is to pay the company with a specific agreed upon amount. This option is best for people who want to invest in a long term cost, where they only need to pay back the loan amount and use the car at the same time. This condition however implies on the fact that your credit score is stable and that taking on this debt will not cause you more sufferings than needed. So now, depending on your need you can get a car either through a loan or through a lease.