Lease vs. Loan

The table below summarizes the differences between loans and leases. For more detailed information, visit Understanding Loans and Understanding Leases.


Lease


Loan

Terms


Lease terms are usually between 2 to 4 years.


Loan contracts are usually signed for 4 to 6 years.

Type of vehicle


The shorter term and lower monthly payment of a lease agreement allow you to drive a new and more expensive vehicle every 2 to 4 years.


Higher monthly payments make driving a new or expensive vehicle every 2 to 4 years unpractical.

Ownership


Unless you decide to purchase, you must return the vehicle at the end of the lease.


You own the vehicle.

Up-front costs


Up-front costs include a monthly payment, security deposit, down payment, taxes and registration fees. If you take into consideration the total cost of the vehicle and the monthly payment you want, the sum is usually less than the up-front costs of purchasing.


Up-front costs include down payment, taxes, registration fees, and other charges. This amount is usually larger when compared to lease, especially if you want an expensive vehicle with low to moderate monthly payments.

Monthly payments


Monthly payments are calculated based on the vehicle's depreciation during the lease term, rent charges, taxes, and other fees. Lease payments are usually lower than loan payments.


Monthly loan payments are based on the total amount of purchase price, plus interest charges, taxes and other fees.

Insurance


The insurance premium is usually higher.


The insurance premium is usually lower.

Early termination


You are responsible for early termination charges, as stipulated in the lease contract.


You are responsible for paying off the loan.

Vehicle return


You need to return the vehicle at the end of the lease. There may be some end-of-lease charges.


You keep the car.

Future value


The lessor bears the risk of the vehicle's future market value.


If you decide to sell or trade-in the vehicle at the end of the loan term, the risk is yours.

Maintenance


You are responsible for the maintenance of the vehicle during the lease term.


You are responsible for the maintenance of the vehicle.

Mileage


Most leases impose a vehicle mileage limit. There will be extra charges if actual mileage exceeds the contract limit when you return the vehicle.


No limit.

Excess wear


You might need to pay extra charges when you return the vehicle if the lessor determines that vehicle wear and tear is over the contract limit.


No limit. Like mileage, however, more wear and tear equals lower resale or trade-in value for your vehicle.

End of term


At the end of lease, you can return the vehicle and walk away, lease another vehicle or purchase it for the residual value.


The vehicle is yours.