Financing Auto: Comparing Loans vs. Leases

When it’s time to get a new vehicle, one of your first decisions will be whether to finance it with an auto loan or lease it. Each option has its pros and cons, and the best choice for you depends on your personal preferences and financial situation. Let’s break down the differences to help you make an informed decision.

What Is Financing an Auto Loan?

Financing a car means taking out a loan to purchase the vehicle. When you choose this option, you’re borrowing money from a lender—such as a bank, credit union, or other financial institution—and agreeing to repay it over a set period. Once you’ve paid off the loan, the car is yours to keep.

Benefits of Financing an Auto Loan

1. Ownership: Once the loan is paid off, the car is yours. You can keep it for as long as you want, which is ideal if you’re looking for a long-term investment. Plus, the car’s value is yours to sell or trade in later.
2. Flexibility with Mileage: Unlike leasing, there are no mileage limits on used cars or new cars. You can drive as much as you need without worrying about penalties.
3. Equity: Every payment you make contributes to the ownership of the vehicle, meaning you’re building equity over time.
4. Customization Options: Since you own the car, you’re free to modify it as you see fit—whether that’s adding new wheels, changing the interior, or upgrading the sound system.

Drawbacks of Financing an Auto Loan

1. Higher Monthly Payments: Financing typically involves higher monthly payments compared to leasing because you’re paying off the full price of the vehicle.
2. Depreciation: Cars lose value quickly, so you’ll be paying for a vehicle that’s depreciating in worth. This can be particularly noticeable with used cars.
3. Longer Commitment: If you’re financing a new or used car, it may take years to pay off the loan, locking you into a longer-term financial commitment.

What Does It Mean to Lease a Car?

Leasing a car is similar to renting it for a fixed period, usually between 2 to 4 years. You make monthly payments based on the vehicle’s depreciation during the lease term. At the end of the lease, you have several options: return the vehicle, purchase it for a predetermined price, or lease a new one.

Benefits of Leasing

1. Lower Monthly Payments: Since you’re only covering the depreciation, not the entire cost of the car, your monthly payments are generally lower compared to financing a car loan.
2. Drive a Newer Car More Often: Leasing lets you drive the latest models with updated features every few years without the hassle of selling or trading in your vehicle.
3. Lower Repair Costs: Most leases last as long as the manufacturer’s warranty, which means fewer out-of-pocket expenses for repairs.
4. Flexibility: At the end of the lease, you can either return the vehicle or buy it outright. This flexibility is ideal for people who like to switch cars frequently.

Drawbacks of Leasing:

1. No Ownership: At the end of the lease, you don’t own the car. You’ve essentially rented it for a set period.
2. Mileage Limits: Most leases come with mileage restrictions (typically 10,000–15,000 miles per year). If you exceed the limit, you may face costly penalties.
3. Limited Customization: Since you don’t own the car, you’re restricted from making significant modifications to it.
4. Long-Term Costs: If you continually lease cars, you’ll always have monthly payments and never fully own a vehicle.

How To Decide: Finance or Lease?

The decision between financing an auto loan and leasing largely depends on your preferences and financial situation. Here’s a quick guide to help you decide:

Choose Financing if:

• You want to own the car and drive it for many years.
• You don’t want to be restricted by mileage limits
• You don’t mind higher monthly payments in exchange for ownership and flexibility.

Choose Leasing if:

• You prefer lower monthly payments
• You drive relatively few miles annually and can stay within the mileage limits.
• You’re not interested in owning the vehicle long-term and want the flexibility to change cars every few years.

Not sure which option is best for you? Use our Car Lease vs. Buy Calculator to help you evaluate which option fits your budget and lifestyle.

The Sound Credit Union Difference for Auto Loans

At Sound Credit Union, we offer some of the best credit union car loan rates around. Whether you’re purchasing a new car or a used car, we’re here to help you make the best decision for your financial future. Our auto loan options are designed with your needs in mind:

• Fast Pre-Approvals: Get pre-approved for an auto loan in minutes.
• Competitive Rates: We offer some of the best credit union car loan rates to help you save money on your next vehicle.
• Flexible Terms: From short-term loans to longer options, we have a financing plan that suits your budget.
• No Hidden Fees: With our transparent process, you’ll know exactly what you’re paying for with no surprises.
• EV Discounts: Receive an additional 0.25% off your rate when financing a qualifying electric or hybrid vehicle.

Ready to explore your financing options? Use our auto loan calculator to get a quick estimate, or contact Sound Credit Union today to apply for your used car loan or personal car loan. Let us help you secure the car you’ve been dreaming of, at a rate that works for you.