The Difference Between a Loan and a Lease
If you don’t have the best credit rating, you may decide to lease a big-ticket item as opposed to buying it outright. While you may be able to afford the product, you may not be able to get a lender to finance your purchase. What are some of the benefits to leasing if you don’t want to or can’t afford to own something outright?
Your Payments Are Generally Lower
For the most part, your monthly payment is going to be lower if you decide to lease. This is because you are just borrowing the product or simply paying for the depreciation. For instance, if you rent an apartment, you are simply paying for the right to use the apartment. If you lease a car, you are paying for the depreciation as opposed to the full retail price of the vehicle.
Interest Rates Are Low or Not Applicable When You Lease
When you lease, you are only taking possession of an item for several months at a time, so there is less risk to the leasing company. Furthermore, the odds are good that the lending company is going to lease the same product several times, which means that that entity will make a profit without charging a lot in interest. Finally, the leasing company understands that most customers don’t want to pay interest on an item that they will only temporarily own. Therefore, they don’t want to scare away a responsible paying customer by over-charging for a product.
There May be Fewer Costs Related to Leasing as Opposed to Getting a Loan
When you get a loan for a home, you have to pay closing costs that can total thousands of dollars that are due when the loan is signed. When you rent an apartment, you generally only owe first month’s rent and a security deposit. Typically, you are required to make a down payment when you buy an item. However, you generally don’t have to or don’t want to make a down payment when you lease a product.
When you get a loan, you are making payments each month in exchange for equity in the product that you have purchased. When you lease, you are simply paying for the right to use that product until the lease expires. While leases can be beneficial, you have to think about all the benefits and associated costs before you decide to lease or apply for a loan.