The most straightforward means of buying a car is to finance it with a car loan. You simply take money from a bank or other financial institution and make monthly repayments. This repayment also includes the interest paid as a fee for the lender’s services. Leasing, on the other hand, uses the idea of monthly payments differently. It requires you to pay a fee for using a car for a limited time.

Of late, leasing a vehicle has emerged as a major alternative to financing a car, but it does not suit everyone. Here’s a list of the pros and cons that should be kept in mind when looking at car finance vs. car lease to make a smart decision:

1. Pros
Between finance vs. car lease, the latter is usually more financially appealing. As you do not have to repay any principal, the monthly payments are significantly lower. You are essentially borrowing the car and paying for the value that the vehicle loses while you use it, along with some other charges. The loss of value is called depreciation.

Here are the pros of leasing a car:

• You get to drive the car while it is in peak condition.
• You get to drive a car covered for repairs through a manufacturer’s warranty that includes scheduled maintenance like oil changes and performance tuning.
• You have the option of driving a car that has better features and a higher price than you can usually afford through financing.
• You do not need to worry about the hassles of selling the car or value during a trade-in.
• Business owners can benefit from tax advantages.
• You just have to drop the car at the dealership at the end of your lease term.

2. Cons
Despite the wide array of benefits, leasing has disadvantages as well. Here are the common disadvantages of leasing a car that you should know about:

• When comparing finance vs. car lease, leasing costs you more in the long term than a loan because you are essentially driving a car that is rapidly depreciating.
• If you get a new lease after completing one lease term, you essentially keep paying monthly payments for a much longer time. On the other hand, if you keep a car after you have paid off the loan, the only payments required are those for its maintenance. The cheaper option in the long-term is to buy a car and use it for as long as possible.
• According to lease contracts, you cannot travel more than a specified number of miles. If you do, you will be charged a penalty for the excess mileage, at a rate ranging from 10 cents to 50 cents per mile. On the other hand, you do not receive a concession or a credit for traveling fewer miles.