What Is the Difference Between Buying & Leasing an Automobile?

Purchasing a new vehicle requires a great many choices. The car buyer must decide on make, model, options and even the color of a new vehicle. The decisions require research and comparison -- shopping to find the automobile that best meets the buyer's needs. In addition to searching for the right car, the car shopper must determine the best financing option to acquire the car. The choice between a car loan and a lease depends on the individual buyer and his financial situation.

Down Payment

The down payment is usually higher for a purchase than it is when leasing an automobile. In fact, in some cases it's possible to lease a vehicle with no money down other than the first month's payment; though dealerships arranging leases often expect a down payment, third-party leasing entities such as credit unions might not. The higher upfront costs of buying a car compared to leasing may be one factor in determining which financing option is appropriate.

Monthly Payment

The monthly payment for a lease is lower than the payment for purchasing the car. On the other hand, car buyers do have the option of paying off the vehicle and eliminating the monthly payment, while leasing requires the individual to remit a monthly payment for the entire length of the lease term. A lease agreement for an automobile essentially requires the driver to pay only for the depreciation of the vehicle that takes place during the period of the lease (plus some profit for the leasing agency). A loan to purchase the vehicle requires the buyer to pay for the total cost of the vehicle, which means the car buyer pays more overall for the vehicle, but then keeps it at the end of the loan term.

Credit

A lease allows car shoppers to obtain a more expensive vehicle than is possible with a vehicle loan. The car buyer may find it more difficult to qualify for a loan on an expensive automobile because of the higher monthly payments. For those with credit difficulties, a lease agreement may provide an opportunity to obtain a better car than they would be able to obtain with a car loan.

Vehicle Ownership

At the end of a lease agreement, possession of the vehicle returns to the leasing company, though the lease arrangement may include an option to purchase the vehicle at the end of the term, often for a price predetermined at lease signing. Those with a car loan are the owners of the vehicle at the end of the loan. For those who prefer to change vehicles frequently, a lease agreement is a good option. Those who prefer to keep the car for a longer period will do well with a car loan.