Financial Literacy Library Guide: The Hidden Costs of Car Ownership

 You own the vehicle and get to keep it as long as you want it.

You don’t own the vehicle. You get to use it but must return it at the end of the lease unless you decide to buy it.

They include the cash price or a down payment, taxes, registration, and other fees.

They can include the first month’s payment, a refundable security deposit, an acquisition fee, a down payment, taxes, registration, and other fees.

Loan payments are usually higher than lease payments because you’re paying off the entire purchase price of the vehicle, plus interest and other finance charges, taxes, and fees.

Lease payments are almost always lower than loan payments because you’re paying only for the vehicle’s depreciation during the lease term, plus interest charges (called rent charges), taxes, and fees.

You can sell or trade in your vehicle at any time. If necessary, money from the sale can be used to pay off any loan balance.

If you end the lease early, charges can be as costly as sticking with the contract. On occasion a dealer may buy the car from the leasing company as a trade-in, letting you off the hook.

You’ll have to deal with selling or trading in your car when you decide you want a different one.

You return the vehicle at lease-end, pay any end-of-lease costs, and walk away.

The vehicle will depreciate, but its cash value is yours to use as you like.

On the plus side, its future value doesn’t affect you financially. On the negative side, you don’t have any equity in the vehicle.

You’re free to drive as many miles as you want. But keep in mind that higher mileage lowers the vehicle’s trade-in or resale value.

Most leases limit the number of miles you may drive, often 12,000 to 15,000 per year. (You can negotiate a higher mileage limit.) You’ll have to pay charges for exceeding your limits.

You don’t have to worry about wear and tear, but it could lower the vehicle’s trade-in or resale value.

Most leases hold you responsible. You’ll have to pay extra charges for exceeding what is considered normal wear and tear.

At the end of the loan term, you have no further payments and you have built equity to help pay for your next vehicle.

At the end of the lease (usually two to three years), you can finance the purchase of the car, or lease or buy another.

The vehicle is yours to modify or customize as you like, although doing so may void your warranty.

Because you must return the vehicle in salable condition, any modifications or custom parts you add have to be removed. If there is any residual damage, you’ll have to pay to have it fixed or you’ll need to file an insurance claim and pay a deductible.