How are Auto Loans Different from Leasing Programs? (Part I)

For many people, whether or not they get an auto loan or a lease will be a matter of personal preference, but for the average new car shopper – there are some questions that need to be answered before they can make an informed decision. Some cite taxes as the reason they lease, others say they like to out and out own their car - again your choice, but here are the differences.

The biggest monetary difference is that when you lease your payments are lower than if you get an auto loan. That’s because with an auto loan you are paying for the whole car, but with a lease you are only paying for what you use. In most cases it will be somewhere around half of what the car is selling for – or a little bit less. The dealer may decide that on a $30,000 car, at the end of the three year lease the car will still be worth $19,000. That means that you will pay only $11,000 for the use of that car for those three years.

Another major difference is that when you use an auto loan to get the car, when you decide to trade it in, you have the value of the car to put against the purchase of another. However, with a lease, you turn it in after your three years are up, and you are starting from scratch – with no equity to turn over. So at some point, if you don’t lease the car, you will pay off your auto loan and will own that car – but you won’t with a lease. You will have to go through the process again, deciding whether to lease or own your next car.

Car leases usually ask for lower down payments than a car loan wants – it can be the difference of $1,000 for a lease as compared to an auto loan which can be as high as 20% or more. Also, many times you don’t even have to put down a down payment at all, but that is harder to do with a loan than with a lease – especially considering the price of the car. If you are going for a higher end, they will expect some money down.


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