Getting a car isn’t an easy decision to make. You have to consider your finances, monthly cash flow, down payments, and more. It’s also very difficult to buy a car paying all the cash upfront in one go. In cases like this, you have two options to get your dream car – financing vs. leasing a vehicle.

Car financing works like a personal loan where you pay back the loan in monthly installments plus interest. Car lease, on the other hand, works like as if you’re renting a car. You pay monthly installments for as long as you want the car and at the end of the lease, you return the car back to the dealer.

Here are the pros and cons of financing vs. leasing a vehicle.

1. Pros of buying a car with car financing

Getting a car loan is the best option for the long run:

• When you buy a car with a loan, you are the sole owner of the car once you pay off the loan.
• You can drive the car for as many miles as you like.
• You can also customize your car the way you want.
• You can also build-up resale value when you’re ready to sell your car.

2. Cons of buying a car with car financing

Here are some points you need to be careful of when you buy a car with a car loan:

• When you get a car loan your monthly installments are much higher than when you get a car lease.
• If you’re unable to pay the loan, the financial institution can take possession of your car.
• It’s not easy to get a car loan in the first place because you need to have a good credit score for a bank to approve your loan.

3. Pros of leasing a car

A car lease may seem beneficial in the short-run but is not very cost-effective in the long run:

• Your monthly installments are much lower as compared to car personal loan
• There’s almost always no downpayment required.
• You can have a new car every few years (depending on when your lease ends)
• You don’t have to worry about your car’s resale value

4. Cons of leasing a car

While leasing a car may seem convenient, be vary of its pitfalls:

• Since a fixed amount is being paid every month, you need to ensure that you have a stable income every month to pay your installments
• A leasing contract will mention the number of miles you can drive your car and if you exceed that you will have to pay a penalty
• You have to ensure that no damage is done to the car because you’re not the owner
• If you plan on leasing a car for many years, you might end up paying much more than the actual price of the car

So, now you know the pros and cons of financing vs. leasing a vehicle. Consider your lifestyle and income before you make a decision. Buying a car with the help of car financing is a good option if you want to own the car for many years to come whereas leasing a car is a good option only if you want the car for a couple of years.