Does Buying vs. Leasing Have an Effect on an Auto Loan?

How does buying or leasing your car affect your auto loan rate?

Whether you’re buying or leasing your car does have an effect on your auto loan rate, but how much? To help determine this, let’s look at some of the characteristics of financing a car under both circumstances.

Leasing Usually Offers Lower Rates

Because you won’t have the opportunity to actually own your vehicle through a lease, the auto loan rate is usually lower. Of course, with a lower interest rate comes a lower monthly payment. This can be a very attractive offer to a person who wants to drive a more expensive car and is not interested in keeping it for more than a few years.

Lower Down Payments for Leases

Similar to interest rates, those who lease can benefit from a lower down payment for their car. Again, the person who leases doesn’t benefit from eventual ownership (the money is not being used to pay off the car – just rent it) and has to take this into consideration when financing a car.

Transition from Lease to Ownership by Refinancing

One way to avoid choosing between buying or leasing your car is by starting off with a lease and then transitioning into ownership through refinancing. Some people take this route to benefit from a lower initial auto loan rate – and a low down payment – until they begin bringing in more financing or can improve their credit score. Once this is accomplished, they simply take out a new loan, which allows them to pay off the balance with the dealership. Afterward, they can make the final payments to the financial institution through which they secured their loan.

Deciding on whether to buy or lease your car not only affects your auto loan rate, but also your lifestyle. So in this case, it doesn’t hurt to conduct as much research as possible to ensure you make the right decision.