Leasing or Buying which one is right for you

To lease or to buy, what a question! The main differences between the two finance options (leasing or financing via a loan) is that a traditional car loan will eventually be paid off, much like a mortgage on a house, leaving you as the owner of the vehicle. The leasing option is more like renting a house – you will never end up owning it.

What is the benefit of leasing then? Well, typically the monthly payments are less as you will never actually pay the full value of the vehicle. The company leasing the vehicle to you will instead sell the car at the end of the lease and pocket the money. You will have paid for something like 1/2 to 2/3 of the vehicle’s total value. This means that for any given car leasing will result in lower monthly payments.

The disadvantage of leasing is that at the end of the lease you will need to lease or buy another car (although typically the leasing company will be more than happy for you to buy the car!).

In my view the choice between the two methods will depend on what kind of car you are buying and how long you want to keep it. For a used car, a car loan will always be the best (and probably only) option. For a new car it will depend on what your plans are. If you want to buy a car to ‘run down’, i.e. keep for all or most of its useful life, then a car loan is for you as the car will be yours in the quickest and cheapest way possible.

If you prefer to have a new or newish car, changing cars frequently (say every two to three years) then leasing may be the better option as you can achieve this with lower monthly payments.

Ultimately leasing is, however, more expensive in the long run. But we don’t all live in the long run.