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Financial Education

Auto Buying Vs. Leasing

You found your dream car! Find the best way to pay for it!

Understanding the difference between leasing and financing a car will help you determine which option is a better fit for your lifestyle.  Drive Altra can help you make the right choice!

Leasing is like renting a car for a fixed term. You make monthly payments and at the end of the term you return the car and start the process over again with a new car. 

Financing a car means buying it with the help of an auto loan. You make monthly payments and once the loan is paid back you own the car.

Payments

In general, lease payments are lower than finance payments.  When you lease, you’re not paying for the entire vehicle, but rather the value you use up for the time you’re driving it.

When buying a vehicle, monthly payments go toward repaying the lender, plus interest.  Unlike leasing, where your leaser owns the vehicle and you continue to pay monthly for the length of the lease. 

Customization

You can customize your vehicle with approved accessories through your dealer, but only at the beginning of your lease.

You can customize your vehicle any way you like and at any time. 

Mileage

When starting your lease, you have a variety of mileage options to choose from to meet your driving needs.  However, if you exceed your mileage limit, you are responsible for any mileage overage charges, unless you choose to purchase the vehicle.

You are free to drive as many miles as you want, just keep in mind that higher mileage will lower the vehicle’s trade-in or resale value. 

Wear & Tear

A normal amount of wear and tear is covered.  You are responsible for wear and tear in excess of normal limits, unless you choose to purchase the vehicle.

There are no additional charges for vehicle wear and tear.  However, excessive wear will lower the vehicle’s trade-in or resale value.

End of Term

A typical vehicle will be worth about half of its sale price after four or five years.  This decline in value is known as depreciation.  Depreciation is what you are paying for when you lease a vehicle.  Typically, a new car will depreciate an average of $3,400 per year.  In the first year alone, the car will depreciate 15% to 20% and then it will lose 10% of its value annually.

There are other factors that can influence the vehicle’s value over time.  When you own a vehicle, you assume responsibility for major repairs, whereas leased cars are typically covered by a warranty.  Leasing can come with all sorts of surcharges, like mileage overages and excessive wear and tear fees. 

Auto Buying vs. Leasing Transcript

What is the difference between leasing and buying a vehicle? Leasing is like renting a car for a fixed term. You make monthly payments and at the end of the term you return the car and start the process over again with a new car. Financing a car means buying it with the help of an auto loan. You make monthly payments and once the loan is paid back you own the car. When buying a vehicle, your monthly payments go towards repaying your lender, plus interest. Unlike leasing, where your leaser owns the vehicle and you continue to pay monthly for the length of the lease. In general, leasing payments are lower than finance payments. When you lease, you’re not paying for the entire vehicle but rather the value you use up for the time you’re driving it. In the short term, based solely on monthly payments, it’s typically cheaper to lease than to finance. The advantage of financing a vehicle is once you’ve paid back your auto loan you own it and no longer have to make monthly payments. Plus, you get the benefit of any residual value if you decide to sell or trade in your car in the future. There are other factors that can influence the value over time. When you own a vehicle, you assume responsibility for major repairs whereas leased cars are typically covered by a warranty but leasing can come with all sorts of surcharges– like mileage overages and excessive wear and tear fees. It’s ultimately up to you whether to lease or buy. Some people prefer to drive a new vehicle every few years even if that means limiting their mileage. Others prefer the freedom of ownership and being able to drive as much as they’d like and customize their vehicle however they want. To determine if leasing or buying is right for you, do your research. DriveAltra can help!

Are you looking for a strategy to use to decide whether to buy or lease?  As a member of Altra you can take advantage of the GreenPath Financial Wellness program, a free financial education and counseling program.  GreenPath counselors are available Monday through Thursday 8 a.m. to 10 p.m. (EST), Friday 8 a.m. to 7 p.m. and Saturday from 9 a.m. to 6 p.m. To use this new service, simply call 1-877-337-3399 or visit them on the web at www.greenpathref.com.