When it comes to getting a new car, finance options are usually a popular choice for many people. Auto loans are generally really common, but another option which some people do not consider includes leasing. So what is the difference between the two and is leasing really a better option over an auto loan?

How an Auto Loan and Leasing Differ

An auto loan is basically a loan which you use to buy a new or used car. You get a certain loan amount (however much you specify) and you then make monthly repayments to the loan company whilst you drive around in your new car.

Leasing is where you get to drive away with a brand new car by simply just putting a deposit down and you then pay back monthly repayments. The repayments are generally lower than an auto loan and if the car which you purchase is going to be used for business then you can also get good tax benefits too.

The deposit which you pay on leasing is also not very large, even on cars which are worth around $40,000. You are looking at a deposit of roughly $2,000 at the most which is really not bad at all.

Now looking at the two you may automatically think that leasing would be a better option and for some people it may well be. However, there are downsides to leasing and sometimes it would be a lot simpler to just use an auto loan to get a new or used car.

What Are the Downsides to Leasing?

The main disadvantage of leasing is that at the end of the loan repayments, the car is still not yours. You are only leasing the car, you are not buying it. Therefore, even though you are paying monthly repayments as you would with an auto loan, the car is never actually yours, you are just borrowing it.

If there is any wear and tear when it comes to handing the car back over, you are responsible for paying extra fees. For example, the tyres could have worn down or you could have done too many miles. Usually the company you are leasing from will specify how many miles you can do throughout the leasing period. If you do go over it then they are likely to charge you extra fees.

Overall there are advantages and disadvantages to both leasing and auto loans and it all depend supon your individual preferences as to which one you prefer.