7 Difference between Auto Financing and Leasing a Used Car

September 10th, 2019 by

A man handing over the keys of a car

Your car is a very expensive purchase, whether you are buying a used car or a new one. A lot of people, especially millennials, who have recently become a part of the task force, do not have enough cash in hand to buy a reliable and good quality vehicle outright. Fortunately, they have a few options.

In this blog, we will discuss the differences between auto financing or leasing a used car and which one is the best option for you. The truth is, however, that there are no set rules to help you make the right choice. Instead, leasing or auto financing depends on your specific financial situation and looking at various factors to make the choice the best suits your circumstances.


When most of us decide to buy a car, we want to keep it and use it for as long as you like. If you decide to auto finance a vehicle, you will be required to pay a monthly fee plus associated costs. With this payment, you will be working your way to owning the vehicle. Once the auto financing term is completed and your loan is settled, you will have complete ownership of your car.

However, when you lease a car, you are only paying to use it, not own it, for a period of time. Once your lease elapses, which typically happens after 2 to 3 years, you need to give back the vehicle to the rightful owner, unless you have made some arrangements to purchase the car before the lease has ended.

Monthly Payments

When you finance a car, your monthly payments are typically higher than when you lease a vehicle. This is because the payment includes a portion of the actual purchase cost of your used car as well as interest accrued on the loan, taxes, and other government and miscellaneous fees. However, if you lease a car, you only pay for the depreciation of the vehicle during the lease period as well as interest for using the car, taxes and other fees.


With an auto financing option, ownership of the vehicle transfers to you after the term ends. This means that you are free to drive the vehicle as much as you want once it is yours. However, a lease comes with more restricted terms and conditions. The owner of the car may limit the mileage you can put on their vehicle each year. If you exceed the prescribed limit, they have the right to demand an additional fee from you.

Vehicle Change

With an auto financed vehicle, you have the option to decide whether you want to keep the vehicle for years to come or resell it to another interested buyer. With the money from the sales, you can pay off your loan balance to get another car. However, when your car is on a lease, you cannot sell it to someone else because you are not its rightful owner. You can choose to terminate the lease early, though, but you may be stuck with a penalty fee for not holding on to the terms of the agreement before the lease period is out. You may end up paying as much as you would have if you had stuck with the vehicle for the rest of the term.

Wear and Tear

With pre-approved auto finance, you don’t have to worry about the wear and tear of your vehicle, though it will affect the value of your car if you decide to resell it. With a lease, the owner can demand penalty fees if the vehicle has undergone excessive wear and tear.

Vehicle Customization

Once you have bought the vehicle with auto financing, you can make customized changes and upgrades to the car. At the end of the lease period, you will need to return the car to the owner in almost exactly the same condition when you received it, with the exception of slight wear. This means that you are not free to upgrade it unless the customization can be removed without causing the damage to your vehicle at the end of the lease period.

Term End

Once you auto financing term ends, you will not need to have any financial obligation with your lender, be it a bank or an auto dealership. You will also have equity in the car which you can use to purchase another vehicle. However, with a lease agreement, you do not have any equity in the car, no matter how high your monthly payment is.

If you take a look at all the differences, it seems that auto financing has a lot of benefits over leasing. However, it comes with a higher monthly payment. As such, people who cannot afford to pay off the vehicle’s price in monthly installments or who do not need a vehicle for long-term use can make use of leasing.

If you are looking to buy a used vehicle but are not sure if you could bear the cost, visit PA Auto Sales and we can work out an amazing auto financing deal for you.

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