Automobile Financing- Buying vs. Leasing (Overview)

By | January 22, 2008

This week I’m going to start a series on automobile financing and automobile leasing. This will need to be a series because there is just so much information in regards to buying vs. leasing that it could fill a book (tax advantages, which is best for a particular type of business, different types of leases and finance deals, whether that ‘undercoating’ actually does anything or not, and where the heck does the salesperson go when they go talk to the manager??)

Ok, maybe I won’t be going over all of those (I have no idea what the undercoating does), but every few weeks I’ll post another article on the topic of Automobile Financing and Automobile Leasing.

And to begin this series, I will go over the basic bare bones differences between the two:

Automobile Financing is when you finance the entire cost of the car (after down payment and/or trade in.) You typically get a loan from a bank or an equipment financing company for a specific number of years, and when you finish paying the loan, the car is yours.

Automobile Leasing, in a nutshell, is you using the car for a specific amount of time, and paying for that time. Say you want to lease a car for three years – the lease payment is based on what the car costs now, and will be worth in three years time with reasonable wear and tear and mileage (called the residual value). In very general terms, you pay the difference between these two numbers. There are a myriad of options available here (like buying it at the end, etc), but this particular post is for the basics, and that’s the basics.

Depending on the situation, either automobile financing or automobile leasing would be the better option, and the next time I revisit this series, we’ll start to go over those.