Motor Vehicles Dilemma: Loan Or Lease?

When you want to finance the acquisition of a motor vehicle the question that always rises is whether it is better to finance a motor vehicle purchase by using a specially tailored loan, another kind of loan or just resort to leasing. Each option has advantages and disadvantages and there is no straightforward answer to this issue. It all depends on your needs and your credit and financial situation.

Thus, before deciding which option is best for you, you need to understand the particularities of each alternative and compare them to your budget’s possibilities and your needs. Only then, you will be able to decide whether you should lease the vehicle or purchase it right away either with a motor vehicle loan or with another kind of loan.

Credit And Income Requirements

Loans imply harsher credit and income requirements mainly because the monthly payments on loans are higher than on lease contracts. In order to obtain a motor vehicle loan you need to show proof that you have a steady income fit to afford the monthly payments without having to make sacrifices and though the same goes to leasing, the amounts you will need to show you can cope with are smaller.

Leasing has less requirements because the motor vehicle remains property of the financial institution and if anything happens with the vehicle the insurance for which you will pay a monthly premium will cover for the loses. Thus, there is little risk for the financial institution which allows them to provide you with the motor vehicle without many requirements.

Leasing Explained

When leasing a motor vehicle, the financial institution purchases the vehicle which remains its property. The motor vehicle is handed over to the applicant who can use it in exchange for a monthly fee. After a period of time, the applicant has the option to put money down and obtain ownership of the vehicle. If so, the monthly payments are computed as part of the payment. Otherwise, they work just like a rent monthly fee.

Leasing provides a lot of flexibility: the applicant can use the vehicle just like if he owned it and the financial institution takes little risk because he retains the title of the vehicle and any damage is covered by the insurance for which the applicant has to pay a fee usually included in the monthly payments of the leasing contract.

Loan Or Lease?

Motor Vehicle loans and home equity loans can both provide you with the financing you need to purchase a motor vehicle. The latter is the best option if you are a homeowner as it provides inexpensive financing and the best loan terms. But if you can not afford such high monthly payments or you prefer to be able to exchange the vehicle for a new one in the near future, you should go for a leasing contract that provides more flexibility and more options for you if you change your mind about the vehicle. In any case, you should ponder the costs of each transaction prior to applying to see which one best suits your needs.