If you’re considering getting a car loan to own your own vehicle, you may be hesitant to buy in because of their high interest rates or automation periods. While you can buy a used car outright and often for much less than a new vehicle, leasing (or renting) is another great option to consider. Let’s take a look at the pros and cons associated with both owning methods.
What is a Car Loan?
A car loan is specific to a vehicle you wish to purchase, which means the car serves as collateral for the loan. Much like a mortgage, the lender retains ownership over the asset until the loan is paid in full. However, once you pay off your loan, you’ll own your vehicle.
What is a Car Lease?
A car lease (or rental) involves borrowing a vehicle and regularly paying for it over a set period, typically for two to five years. Similar to renting a house, leasing a car won’t offer you full ownership rights over it, and there will be some restrictions on how you can operate it.
Car Loan Pros and Cons
Here are the following pros associated with getting a car loan:
- You can choose your own comprehensive car insurance options from a list of lenders.
- You end up owning your own vehicle, and you’ll have a clear title associated with the car.
- You can do what you want with the car, including adding various modifications
- You are free to sell the car, even if you still have outstanding debt on the loan.
Here are the following cons associated with getting a car loan:
- You typically pay a higher monthly payment amount than you would for a lease.
- You have to pay for all maintenance and repairs associated with the vehicle.
- You have to sell this car yourself, which can be quite the hassle.
- Your car will depreciate with time, leading to a lower-paying asset.
Car Lease Pros and Cons
Here are the following pros associated with getting a car lease:
- You are offered cheaper recurring payments than you’d get with a car loan.
- You can drive the latest models and switch them up every few years.
- You don’t have to pay for maintenance or repairs with a lease.
- You receive multiple tax benefits and savings when you use a leased vehicle.
Here are the following cons associated with getting a car lease:
- You don’t own the car and never will, so you can’t sell it if you need the money.
- You will be restricted from making modifications to the car’s performance or design.
- You have significant driving restrictions, like how much or long you can drive the vehicle.
- You’ll have higher long-term costs than you would from a car loan.
How to Choose Between a Car Loan or a Car Lease
What you choose will depend on your lifestyle choices and how you wish to use your car. Most people prefer to use a car loan because they can eventually own their vehicle, while others will prefer the freedom and variety a car lease can bring. These case studies will help you decide.
A trendy sportster who’s obsessed with cars and loves driving the latest tech will prefer a car lease. They believe that driving the newest car brings them happiness because it helps them enjoy their long commutes without the added tax. They’re fine with the overall extra costs.
A consistent professional will prefer to look over at their car and believe that they own it and can do what they wish with it. A novated lease is just that to them – a novelty, one that will diminish in time. A consistent professional will prefer the freedom to supe up their car as they like.