In the early 2000s, leasing was not a big slice of the auto business pie, but today, it constitutes almost one-third of all transactions for new vehicles. Understanding the pros and cons of leasing vs. financing a vehicle and making a choice between the two boils down to a purely individual decision.

Some people have brand loyalties, while for others, it’s all about riding around in a new, deluxe, trendy vehicle that they can swap easily when the next best thing comes along. Either way, you need to clearly understand the pros and cons of financing vs. leasing a vehicle before you make the final decision.

Why is leasing preferred by some people?

• Cars are a big-ticket purchase
  Auto costs have risen steadily over the years and a well-known brand can cost more than the average American can afford to spend on an outright purchase. Financing requires a 10% down payment, along with a relatively high monthly repayment rate. Someone looking for a low rate that fits into their monthly expenses may prefer to lease their vehicle rather than finance it.
• Dealerships offer both
  Vehicle dealerships have wised up to the fact that customers love options. They may experience a shock when the (usually variable and indexed) financing terms are explained to them and they realize what their monthly financial commitment would be. On the other hand, leasing terms are usually fixed and tend to be on the affordable side, so they may quickly switch from financing to leasing.
• Credit history
  People with a less than rosy credit score, first-time car purchasers, students, and such others may find it difficult to meet the conditions of credit imposed by financing companies. They may have to pay higher interest rates or may be refused a loan. People with great credit history may also find that a bank could decide that their debt-to-income ratio is too high. However, leasing provides much more relaxed terms.
• Flexible options
  Leasing is a short-term commitment and allows planning for a smaller, immediate time frame. For people who have just started their first job, have recently moved, are senior citizens, or are entering a new phase in life, leasing makes sense.
• Lower maintenance costs
  Leased cars are usually new and in the warranty period, which means you can free yourself from maintenance hassles, inconvenience, and repair costs.
• Monthly costs
  When it comes to the pros and cons of financing vs. leasing a vehicle, you get to drive a brand new car every time with leasing, and your monthly payments are easy to predict and plan. Also, you don’t have to plan for repairs or maintenance as you get a new vehicle.
• Tax planning
  Many people use their leased cars for work as well, which means a part of the lease payment amount, gas expenses, and maintenance, if any, can be written off as a deductible expense. Self-employed people can write off business-related costs with the help of standard mileage rates and save on taxes by keeping a track of vehicle use.