Why would a consumer opt for a car loan rather than just leasing a car?
Well, for one, with a car loan, a buyer owns the car immediately after paying the initial down payment. The consumer is granted partial ownership. During the term of the loan repayment the buyer will use the monthly installments to pay off to the auto financer the amount used to purchase the car.
With leasing a car, a consumer will never claim ownership to the car. The consumer will still pay monthly payments to the car dealership, though at a lower rate, but the car will always remain the property of the financier. The only time the consumer can be given the opportunity to own the car is after the term of the lease ends. Still, the monthly amounts the consumer had paid under the lease arrangement will not be taken into consideration when calculating the cost of the car.
With auto financed vehicles, the financier cannot enforce mileage restrictions on the consumer. The consumer just has to ensure he pays the monthly installments and he can drive to any unlimited distances. Car leases however, impose penalties anytime the consumer goes beyond the mileage
restrictions agreed on with the lease agreement.
A car loan also has the advantage of loan prepayment. That as long as the consumer feels he has the capacity to do so, he can pay off the remaining amount ahead of schedule. This way they can save the money that would have been accrued on loan interest.
This option does not apply to car leasing. Since the consumer can never own the car, he cannot choose to pay off the remaining amount. He must adhere to the payment terms stipulated in the lease agreement.
Therefore, given the option between car leasing and applying for a car loan, a wise consumer would opt for the latter option.
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Tags: Car Loan
