Loan vs. Lease

Loans and leases are two different forms of financing. Loans are borrowing money, while a lease is a rental agreement. There are a few significant differences between the two that you should take into consideration when making a choice.

Comparing Loans vs. Leases

Buying a car has higher monthly payments, but the payoff is you get to own the car when the loan is paid off. On the other hand, leasing has lower monthly payments and lets you drive a car that may be more expensive than you would be able to buy. But, you get into an unending cycle of payments for the car you are driving.

There will always be people wanting to own their vehicles instead of leasing every few years, but with more and more people choosing to lease a car than they used to, the growth in leasing isn’t going to be slowing down anytime soon.

Differences Between Loans and Leases


When you take out a loan, you get to keep the vehicle and use it as you see fit for as long as you want. You also have the option to customize your vehicle and make alterations. For instance, a business can add a vehicle wrap to the car to show off its brand.

Loan payments are usually higher than lease payments. When you take out a loan, you are paying for the full value of the vehicle.

You can sell or trade-in your vehicle whenever you want when you take out a loan. If you do so, the money from the sale goes towards paying off the loan.


When you lease a car, you’re paying for the right to drive it for a fixed period of time. At the end of the lease term, you return the vehicle to the dealer and can often buy it.

When you lease a car, the payments are typically lower than when you purchase a car because depreciation is included in the lease. Usually, when someone leases they’ll also have to pay interest, fees, and taxes.

If you want to get out of your lease early, you will be charged early termination fees. These fees can be as much as the rest of the lease’s term.

In most cases, the company leasing the car will want it to be in perfect condition to resell it. This means you will have to remove any modifications or customizations and pay for any damages or permanent alterations.

Other Considerations

How many miles you plan on putting on the vehicle can also help you decide whether it’s better to lease or finance. If you usually only drive your vehicle on short drives and don’t commonly drive long distances, you likely won’t have to worry about the miles put on the car with a lease. However, if you live in a rural area or drive your car all the time and plan on putting on plenty of mileage, a lease probably wouldn’t be the best option because of the costs associated with the additional miles you would need to pay for at the end of the lease. These fees vary by dealer and can add up to quite a bit of money.

There are other factors to consider, including your long-term intentions with the vehicle. If you want to keep the car for only a few years and then get a new one, leasing is a better financial choice. But if you plan to keep the car and use it for a longer period of time, financing is likely the better option.

Which is the Best Choice? Loan vs. Lease?

Ultimately, both a lease and a loan help you get you in the vehicle you want to drive. Which is best for you often depends on many factors, including monthly payment, the miles driven, alterations to the car and more.

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