Options for Leasing & Buying a Car

One main difference exists between leasing and buying a car; the leasing bank owns the car during a lease, while financing results in full ownership. Leasing is similar to renting; you'll return the vehicle after using it. Both contracts offer flexible terms. To determine which is the better option, consider whether you would benefit from owning the car or leasing it based on your driving needs.

Term

Term options for a lease or auto finance differ. You may lease a vehicle anywhere from 24 to 60 months, although 36 or 39 months is the most common leasing term. Leasing for a longer term is not beneficial, as the lease payment increases and may prove similar to a comparable finance. However, you won't own your vehicle at the end of the leasing term. If you are financing, you can choose a term of 36 to 84 months. You can pay off your vehicle loan early and take advantage of your vehicle's equity at any time by trading it toward another purchase or selling it privately.

Monthly Payment

Leasing monthly payments are lower than a comparable finance, as payments are based on a car's expected depreciation. Depreciation is determined by the term and mileage of the lease you choose. Most lessees pay for about 50 percent of the vehicle's purchase value over the term of a lease. While the monthly payment for financing may prove higher than a lease, you can at least expect to own the vehicle outright once the loan is paid in full. When leasing, you'll return your vehicle at the end of the term without and won't receive any money back if the car has equity.

Vehicle Use

If you purchase your vehicle, you may do with it as you please. Finance contracts require full-coverage insurance over the term of the loan, whereas lease contracts require the same and more. When leasing, you must choose a mileage allowance. If you go over your contracted mileage amount, you'll pay up to 20 cents per mile over your allowance. Leasing banks also charge wear-and-tear fees. These fees make up for any loss of bank-determined value if your vehicle is not in good condition upon return, which may include tire replacement, excess wear in the seats or deep exterior scratches or body damage.

Ownership Cost

Leasing offers an ownership option. You do not have to return the vehicle at the end of the contract. If you want to purchase the vehicle, you'll pay the leasing bank for the car's buyout amount, which can finance elsewhere. You can also trade the vehicle or sell it for the leasing bank's purchase amount at any time, so you are not entirely stuck in your contract. However, a lease purchase often costs more than a comparable finance or cash purchase because of lack of negotiations and rebates.