Once you know the basics of buying vs. leasing, you’ll probably prefer one over the other. Maybe you like the feeling of ownership and (eventually) driving around in a paid-off vehicle. Or, you prefer lower payments and the option to return the car for a new one once the warranty ends.
If you are still unsure which option is best for you, there is a third way to consider: a Better Than a Lease Loan. With this type of loan, you own the car, but you make lower payments than with a traditional loan. You also avoid some of the out-of-pocket expenses that come with a lease.
How do you avoid these higher costs? Because you own the car, you don’t pay a security deposit. During the loan, you pay only for the depreciation, or the amount of the vehicle’s value you use.
Once your term ends, you have a few choices.
- Return the vehicle, paying only for excess mileage and unrepaired damage or missing original equipment.
- Refinance the remaining balance into a traditional loan.
- Sell the vehicle on your own, pay off the remaining balance, and keep any profit.
- Trade in the vehicle and realize any equity you have built up.
Vehicle ownership does have risks. You will probably want to have gap insurance in the event of a total loss of the vehicle before you finish the term. If there is more depreciation than predicted, you will have less equity to work with.
But the opportunity to drive a better make and model than you could otherwise afford, combined with the freedom to choose your option at the end of the term, make the Better Than a Lease Loan an attractive option for both buyers and leasers.