When making the decision to purchase a new or used car, many others lie ahead. One of them lies in the selection of a lease or a loan for the financial plan with this new property.

But what is the difference between one and the other? What advantages or disadvantages do they have? Who chooses which of the alternatives? Given these questions, we have decided to offer you a brief guide to each of the terms and their characteristics.

Let's talk about a lease

It is a financial modality that, after signing a contract, allows the person to use that car for a limited amount of time or miles. Through the lease you do not become the owner of the car and you must return it when the time or mileage stipulated in the contract ends.

According to the U.S. Consumer Financial Protection Bureau, the monthly payments in this modality are likely to be lower, but they are directed toward the depreciation of the vehicle plus rental charges.

Another consideration you should keep in mind is the responsibility to pay cancellation fees at the end of the contract. For its part, another factor that you should consider is that you can buy the vehicle once the lease contract ends. Typically, a lease can be two to four years or between 10,000 to 15,000 miles.

People who like to have a new car regularly or want to opt for a luxurious model frequent leasing as a financial option. Likewise, this option helps those who must have the latest technology in vehicles and those who change cars frequently.

Now, loans are…

For their part, loans present the option of requesting an agreed amount of money directly from the selected banking institution. It is with the loan that you agree to pay a stipulated amount plus the finance charge agreed upon. The amount of payments or time of payment responsibility varies depending on the agreement reached.

With this loan, you pay directly to the business where you purchased the vehicle and your contract is then maintained with the selected financial institution.

Through loans you can compare prices and credit options to know the most that is within your financial reach. Although the payments are higher than in a lease, a part of each of them goes towards the purchase price of the car.

Unlike leasing, with the loan option there is no mileage limit and it is the buyer who assumes the risk of vehicle depreciation. Typically, a loan payment term to finance cars can last four to six years.

The people who most frequently use the loan are those who will have or want to have a car for many years.

Now you have a more comprehensive view of loans and leasing and the advantages and disadvantages of each one. Remember before making a decision that for both options you must consider your monthly spending plan, determine how much more you can pay and which of the two options fits your needs. This way you can choose the most convenient option for you.

Good luck with your purchase!