Apart from buying a home, buying a car is another major expenditure. Purchasing a car at full price can significantly dwindle your savings. Alternatively, you can finance your car purchase via an auto loan. Furthermore, you can consider leasing a vehicle. While leasing is a car is less expensive, in the long term, buying a car has higher returns. Understanding the advantages and disadvantages of both will help you decide between leasing and financing a car. Read on to know how to decide between leasing and financing a car.

Advantages and disadvantages of leasing

• The lease amount is often lower than the EMI amount of the car
• You can drive a model that is unaffordable with an auto loan
• Switch cars every two to four years
• Warranty is valid for the entire lease period, reducing expenditure on regular maintenance
• Once the existing lease expires, you do not have to worry about reselling the car and choosing another model; you can simply get a new lease and not worry about the resale process
• To ensure you can pay the lease, you need a guaranteed source of income
• It is tough to get out of a lease contract before its expiry, and you may have to pay a pre-closure penalty
• Limitation with mileage allowance (ranging between 10,000 and 15,000 miles per year) beyond which you have to pay an additional mileage fee
• The lease payout will be higher over the long-term
• Lease agreements have several additional expenses like license fees, down payment, security, and default penalties

Advantages and disadvantages of financing

• Every monthly installment takes you one step closer to owning the car at the end of the loan duration
• If you take good care of your car, its resale value can help recover its purchase cost
• There is no limitation on the annual mileage or customization
• No end-of-lease charges, wear and tear fees, and penalties
• When you opt for car financing, you pay the full price of the vehicle over the loan duration, which means the monthly installment is higher than a lease
• Once the warranty expires, you will have to pay for all repair expenses from your pocket
• You will have to undergo the process of reselling your car

Both have their pros and cons, making how to decide between leasing and financing a car overwhelming. You must research the available options, compare expenses for both options, and calculate total outflow over the long-term to make an informed decision. Furthermore, check the fine print of the lease and the financing agreement to avoid unpleasant surprises.