Car Financing FAQ: Loans Versus Leases

What is a lease?
 
A car lease, simply put, is an agreement between a dealership and a consumer to make monthly payments on a car, for  a lower fee, however, the car must be returned at the end of the lease term, or a final buy out must be made. One can consider a lease to be an extended rental agreement in which the consumer takes ownership of the car for a specified period of time, usually three year.
 
What is a finance?
 
A car finance is an agreement between the car company and the owner to pay for a vehicle over a specified period of time in monthly payments. At the end of the payment period the owner of the car takes full ownership and responsibility for the vehicle in question.
 
Do leases or financing have better interest rates?
 
Interest rates for both car loans and car lease will depend entirely on the consumer's credit worthiness and past purchases. For example, a person with a credit score above 700 will garner a lower finance and lease interest rate than an individual with a credit score hovering in the 600 range.
 
What are the perks of leasing a car?
 
Leasing a car has many perks. When a person decides to lease a car they will have to put less money up front on a lease than they would on a finance. Additionally, their payment will be lower than if they decide to finance a car.
 
What are the perks of financing a car?
 
When one decides between car loans and car lease, they may wonder what the perks of financing are. The biggest perk is that at the end of the finance period the owner has collateral, that is they own the car and can trade it in for its residual value for a new car.
 
What are the negatives of leasing?
 
For people who drive a great deal a lease is constricting. All leases generally come with a mileage restriction for the duration of the lease. A consumer can choose between 10,000, 12,000 and 15,000 miles per year on their lease.
 
What are the negatives of financing?
 
When one decides between car loans and car lease they often wonder about the negatives of financing. A finance does have downfalls. Once signed for, the owner of the vehicle is locked into the duration of the finance.
 

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