TO FINANCE OR TO LEASE – THAT IS THE QUESTION
Choosing between financing and leasing your next vehicle can be confusing, especially if you don’t completely understand the differences between the two. To help you make an informed decision, here’s how the two auto loan plans work:
- Financing: When you choose financing, it’s essentially the same as a mortgage except the loan is on a vehicle instead of a house. You plan on purchasing the vehicle, but instead of paying the entire cost upfront you pay off the cost in smaller payments (usually monthly). You typically make a down-payment, which can lower your monthly payments, and you pay an interest rate determined by your loan company based on your credit score. You have the option of selling or trading the vehicle based on its depreciated resale or trade value.
- Leasing: Choosing leasing means you don’t initially intend to purchase the vehicle, but instead are only “renting” it for an extended period of time. You pay only for the vehicle’s depreciation during your tenure with it, and you don’t typically make a down payment. Instead you make monthly payments (with sales tax) along with a financial rate, called a “money factor,” that’s similar to interest on a loan. You may also be required to pay fees and possibly a security deposit. At the end of your lease, you may either return the vehicle or purchase it at its resale value.