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Car loan or car lease?

Blog | Car Credit | Credit

Thinking about a new car? To buy a new vehicle? If you do not want to pay the full price, you will have your turn to either credit or  leasing. Beyond the marketing arguments, what are the real cost differences between these two solutions? We offer some explanations.

Credit and leasing: definitions

First of all, it is important to understand what is a loan and what is a leasing. Indeed, if both are used to finance vehicles, there is a big difference between those two solutions:

      • Leasing: a leasing consists of a long duration lending. The contractor pays the depreciation (loss of value) of the vehicle as well as an interest based on the value of the vehicle. At the end of the contract, if he wants to own the vehicle, he will have to pay the residual price of this one.
      • Loan: this is a bank credit. The amount is used to purchase the vehicle entirely. The borrowed amount of money will be gradually repaid (with interest) over a period from 12 to 72 months.

Cost differences

It is difficult to identify the best solution at first glance. Indeed, the total cost will depend on many circumstances: price of the vehicule, contract duration, vehicule value depreciation over time (which varies depending on brands and models), interest rates, terms of the contract, … If the exact cost is somewhat difficult to calculate without a concrete offer, we can nevertheless identify certain trends:

      • On a long-term (3 years or more), the leasing is usually more avantageous. On 1 – 2 years, the car loan will offer a lower cost in most cases.
      • It is not possible to simply compare the interest rates of a leasing and a loan: the cost is calculated differently. Generally, the credit comes with an higher rate, without that necessarily meaning a higher cost.
      • The montly bill is almost always high for a loan that for a leasing. However, there is no additional cost related to repurchasing the residual value of the vehicle at the end of the contract.

Other considerations

Finally, it is necessary, before deciding, to understand that, beyond the cost differences, you should take other matters into consideration. Thus, a car lasing generaly comes with some restrictions stipulated in the contract:

      • Mileage limits
      • Mandatory complete car insurance
      • Reselling the vehicule will be prohibited (as you are not the legal owner of the vehicule)

Credit or leasing?

Finally, the choice is not so obvious, and will depend on circumstances and preferences. For this reason, the best solution is to compare offers. If you can ask a leasing quote directly from your car dealer, you can also get a free loan offer directly towards a loan agency like CreditLoan: in order to receive a free non-binding quote.