Auto Loan vs Lease? What's the Difference?

Every car buyer has asked themselves the question: should I buy or lease my car? Buying a car often comes with perks that you won't find with leasing and vice versa. While getting an auto loan means you're paying towards the eventual ownership of the car, leasing means you'll never be stuck with a lemon. It may sound like leasing is the best way to stay current with vehicle trends, but you'll often be limited in what you can do with a car that you’re essentially renting.

Before choosing the option that’s best for you, it is important to understand the differences between buying vs. leasing a car.


Auto Lease Advantages

Just like buying a home, there are plenty of people that prefer to rent. The same is true for cars. When you lease, you are essentially “renting” the vehicle for a predetermined period of time with monthly lease payments. With prices of new cars at an all time high due to the global microchip shortage, leasing a new car is more viable than ever.

Leasing Downsides

The downside of a lease is you are restricted to the number of miles you put on your car. Typically, the agreement made with your leasing company will stipulate a mileage limit for the lease period of your vehicle, and going over the mileage maximum will incur a fee.

For example, if you agreed to drive the car a maximum of 30,000 miles for the period of the lease, you will pay a penalty if you go over. Inversely, you will never be reimbursed for going under your maximum. While you should always be careful driving a loaned or leased car, be aware of the wear and tear fees that could balloon your payments with a leased vehicle. A suboptimal credit score will also negatively affect your ability to get a lease.

If you have a good understanding of your finances, have an ideal credit score, are a cautious driver, and aren’t worried about going over your mileage maximum, then leasing can be a great alternative to financing a  brand new vehicle.

Leasing might be right for you if you:

  • Like driving a new car every couple of years
  • Find new safety features and options very important
  • Always want a car under warranty
  • Don’t care about ownership
  • Drive a limited number of miles
  • Are a cautious driver
  • Have great credit


Auto Loan Benefits

When you buy a new or used vehicle from a dealership, you typically make a down payment, pay sales tax, and finance the purchase price at an interest rate predetermined by your loan company. You can even be preapproved for an auto loan from First Commonwealth before you even step foot on the lot. Rates at FCFCU are determined by a borrower’s credit profiles, which allows greater opportunity for more individuals to be approved for credit.

With the pandemic winding down,  the last thing you want to worry about before starting your road trip is paying a fee for going over your mileage. If you have big plans for the next several years and plan on driving, then an auto loan is the way to go.

When looking for a dealer, make sure to go to one you can trust. Financial institutions will usually partner with a dealership to offer competitive rates to customers.  Auto loans give you added control over your car compared to a lease. During the length of the loan, you'll have the option to refinance your vehicle at a lower rate. Our favorite credit union offers rates as low as 2.24% for 36 months.


Buying a vehicle is good for you if you

  • Want to Own the car
  •  Don’t want to risk lease-end costs
  • Plan on driving the same vehicle for many years
  • Don’t mind covering repairs after the warranty expires
  • Are a high-mileage driver or plan to travel
  • Have a lower credit score.


An Old Car is New to Someone

With the shortage of new cars, the old stigma of “Keeping Up the Joneses” is quickly becoming out of date. Every new car instantly becomes a used car the second it drives off the lot, and in today’s day and age, a car being used is no longer a negative. According to the Wall Street Journal,  

“Over the past 12 months, the index for used cars and trucks rose 41.7%, according to the consumer-price index. Prices for new vehicles rose 6.4%, the largest jump since the period ending January 1982.”  

Getting an auto loan is the easiest way to find yourself driving a low mileage certified pre-owned car, and could turn into a financially successful investment.

Can You Buy A Leased Car?

We said an auto loan is usually the best way to go about owning a new or used car, but there are ways to buy a leased car. The end of your lease agreement doesn't always mean it’s time to say goodbye to your vehicle. If you're not ready part with your ride, consider the buyout option. This allows you to pay the remainder of your car’s residual value of a leased vehicle to own the car. You can either pay the residual as one down payment or with an auto loan. The monthly payment of your auto loan may be higher than your leased payment, so check out our auto loan calculator to estimate your potential car payments before making the deal.

Due to the global shortage of new and used cars, the buyout option may not be available in your lease. We suggest consulting with your dealer before making leasing or buyout decisions.

Before making a decision, talk to us at First Commonwealth! Our auto loan specialists can help you determine how much you can afford to spend and which option is best for you.

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