The Difference between Financing and
Leasing... Which one is Right for You?
If you are
thinking about getting a new car or truck, one of the things you'll need to
consider is whether you want to finance your car or lease it.
Financing
your car is where you borrow the money to buy your car. You pay regular
payments to the lending company. Leasing your car is where you borrow the car
and pay regular payments to the company lending you the car.
With
financing, you own the car. If you cannot make payments, the lending company
will repossess the car to try and sell it and recoup what they couldn't collect
from you. With leasing, the dealership owns the car. If you cannot make
payments, the dealership will repossess the car to try and recoup what they
couldn't collect from you.
The key
difference between the two is who owns the car. This difference will have an
impact on how you drive the car and what you do with the car at the end of the
loan period.
With
financing, you own the car. When the loan is over, you own the car "free
and clear" and can continue driving it or resell it or whatever. The
advantage to you is that you actually own the car and are free to do whatever
you want with it. The disadvantage to you is that you actually own the car and
are now responsible for selling it.
With
leasing, the dealership owns the car. At the end of the loan period, they would
like to get the car back in great shape so they can resell it. The advantage to
you is that you're paying a small monthly fee to drive a nice new car and you
don't have to worry about selling the car at the end of the loan. The disadvantage
is that the dealership might charge you extra for mileage over a specified
annual mileage allowance or they might charge clean and repair the car when
you're done with it.
So, which
one is right for you? That depends on you, of course. If you want to own your
car and not worry about the shape you'll return it in at the end of the loan,
then financing might be the way to go. If you want to always drive the latest
car, and you don’t mind paying extra if the dealership doesn't feel that the
car is pristine, then leasing might be the option you prefer.
We've tried
to take a balanced approach on financing versus leasing. For more information
about financing and leasing (although they are not necessarily neutral on the
topic!) check out these links:
· This article from Investopedia takes
a mainly balanced approach and digs in a little deeper into the topic: http://www.investopedia.com/articles/pf/05/042105.asp#axzz1UYnOEaF8
·
LeaseGuide has some valuable tool
and tips for leasing: http://www.leaseguide.com/index2.htm
· The Buy Versus Lease Decision: Suze
Orman is no fan of leasing! Find out why she doesn't like it: http://biz.yahoo.com/pfg/e16buylease/
