Which makes the most sense, to finance or lease a new vehicle? Each one has its own benefits along with drawbacks, both financial and non-financial. Let’s take a look at each to help when making a decision:
Pros of Financing: After the loan has been paid off you will own the car free and clear without burdensome payments. The vehicle is an asset that has value to it. For tax purposes, if the vehicle is used for business, then you can deduct depreciation, interest, gas, etc.
Cons of Financing: Your monthly loan payments are usually much larger than with a lease. You should also be prepared to keep your vehicle for a long time because you will be shocked by the low trade-in value offered by a car dealer. Also, if you keep your vehicle for a while, your repair costs may increase.
Pros of Leasing: Usually lease payments are much lower than when financing, and every three years you get to drive a new car. Additionally, you may have little to no repair costs except for routine maintenance. If you use your vehicle for business purposes you can also deduct a portion of the lease payments for tax purposes, along with gas, etc.
Cons of Financing: The worse aspect of a lease is that you have a perpetual car payment. Also, you may not have any equity in the vehicle after the end of the lease term. This is why leasing can be more expensive in the long-term.
Unfortunately, there is no clear answer, but generally you end up paying more with a lease over the long term. An alternative is to purchase a quality used car (and try to pay cash) that is less than 3 – 5 years old, and this is where you get the most bang for your buck.