You’ve finally found the car, the one you can’t wait to show off and even look forward to driving during your commute. Now comes the next part: how will you pay for it?
Unless you’re paying cash for a vehicle then you’ll likely need to secure financing.
With auto financing you typically have two choices. You can apply for an auto loan or a lease option. Both options can get you behind the wheel, but they come with different responsibilities, costs, and long-term benefits.
Let’s look at how auto loans and leases compare to one another and the key factors you should consider when deciding between the two options.
What’s the Difference Between a Loan and a Lease?
Before you walk into a dealership and start the financing discussion, it’s helpful to understand the differences between a loan or a lease.
Auto Loan
When you take out an auto loan, you’re borrowing money to buy the car. You make monthly payments (plus interest) until the loan is paid off — and then the car is 100% yours.
Lease
Leasing is like a long-term rental. You pay a monthly fee to drive the vehicle for a few years, then return it at the end of the lease term. You don’t own the car unless you choose to buy it at the end of the lease. You’re also not building ownership, which means you will not have any ownership stake in the car.
Upfront Costs and Monthly Payments
A loan and lease impact your wallets in distinct ways.
Loan: Financing with an auto loan usually requires a down payment and your monthly payments tend to be higher, since you’re paying off the full cost of the vehicle. Term lengths vary but more common lengths last from 36 to 72 or 84 months.
Lease: Leases often have lower monthly payments and minimal upfront costs, but you won’t build any equity in the car since you’ll turn the car back in at the end of the lease.
If you're working with a tighter budget or want to drive a newer model for less, a lease might seem attractive — but you're not building ownership. Leasing also ties you to specific terms, which means ending a lease early results in financial penalties and fees.
Maintenance and Mileage
Another major difference between a loan and lease is how maintenance and mileage impact your budget.
With a loan, you can drive as much as you want, modify the car, and keep it as long as you like. But once the warranty expires, you're responsible for all repairs.
On the other hand, leased cars are usually under warranty, which limits surprise repairs. Though you could face mileage limits (typically 10,000–15,000 miles per year) and possible fees for wear and tear.
Choosing Between a Loan or a Lease
How do you know which auto financing option is right for you?
A loan may make more sense if you:
Plan on keeping the car for several years
Drive a lot or take long road trips
Want to build equity and eventually own the car
Prefer personalizing the vehicle with modifications
Consider leasing if you:
Like driving a new car every few years
Are concerned about ongoing maintenance and repair costs
Prefer lower monthly payments
Can stick within mileage limits
There’s no one-size-fits-all answer for auto financing and it comes down to what works best for your budget, lifestyle, and long-term plans. Space Age Credit Union offers competitive auto loan rates that may make buying more affordable than you think.
