Differences Between a Car Loan And a Car Lease

Car loan

Personal car transport has become increasingly popular in that past decade. The number of cars of the road have more than tripled in this period. The traditional Indian Bollywood slogan for the basic amenities of life, ‘Roti, Kapda, Makaan’ has now added another element to it and become, ‘ Roti, Kapda, Makaan, Ghadi’. That’s how much we have started using private transport.

In USA, it’s the only form that is easily accessible because it is not a hidden fact that apart from metropolitan cities like New York and Chicago, public transport is very poor pretty much everywhere. Although cars are becoming a necessity, not everyone can afford it. Hence people are finding and have developed new options for the same. One of the most common and easy option is a Car Loan. However, another option that has become increasingly popular is a Car lease. Many people mistaken them for each other but they are widely different. In this article we will explore how different they are.

  Car Lease Car Loan
Ownership You are not the owner, you pay to use the car for a fixed period of time. At the end of the term, you can either return it or buy it. You own the car, keep it, use it however, for as long as you want, and add any changes or modifications to it as per choice.
Down Payments  A refundable security deposit, registration fees, taxes, and possibly any other fees among first month’s payment are needed during leasing the car. Usually includes the total cost or a down payment, taxes, registration fees, possibly some other fees such as insurance.
Monthly Payments Most of the time, lease payments will be lower than loan payments since you pay for the depreciation of the vehicle during the time of the lease+ interest + rent charges + taxes + fees. Payments tend to be higher than leasing..This is because you’re paying for the entire value of the car divided by the loan tenure + interest rate + any other fees or charges.
Depreciation As a leaser, you are not affected by the Future value of the car, and also do not get any equity from the car. The vehicle will depreciate in value, with increased usage and you will bear the cost at the time of resale.
Vehicle Return At the end of the lease term, you can choose to return the vehicle after paying any end-of-lease charges or buy it. You have the responsibility to sell or trade in the vehicle whenever you want, with whom ever you want and for any price you want.
Early Termination In case you wish to end the lease early you will have to pay early termination fees. There is no early termination and the same applies here as in case of vehicle return.
Wear & Tear If your car undergoes excessive wear and tear, you will have to bare the cost as a penalty. Resale value of the car is the sole thing that will get affected. This is because wear and tear reduces thee car value.
Distance Leases generally have a limit on the distance you can drive the car, and you will incur extra charges if you go over that limit. There are no restrictions on the distance whatsoever, however you should be aware that more kilometers will lower its resale value.
Customizability You may or may not be permitted to customize the vehicle. In case you are, you will have to remove any and all modifications or customization’s by the end of the lease, and pay for any damages or permanent alterations that were caused. As the care owner you can do whatever you want to it. Remember, what you do will affect the resale value.
Taxes Taxes as applicable. You can receive tax breaks if you use the car for company purposes. You can receive tax breaks if you use the car for company purposes.

Although Leasing costs less upfront, it tends to be more expensive in the long run. However, buying will turn out to be cheaper than leasing in the long run. Wait. You can combine both too. You can lease to buy. Meaning, at the end of your lease, you’ll buy the car based on its “residual value,”. If the offer to buy your car is less than its market value, and you want to keep your car, this is a handy option.


About Jennifer Cribsly

I'm a former real estate broker who specialized in helping first time buyers be able to purchase a home. Now full time mom, part time real estate owner/investor.
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