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What is the difference between leasing and financing a truck? My friend needs to buy a truck to start a business, and he asked my suggestions regarding the lenders offering a loan. In my search, I came across a company offering truck financing. They have a payment calculator too. So, when I calculated the interest rate and monthly payments, I felt it much convenient for him.

But, then I came to notice an option to lease. So, I am confused now. Which is better and what is the difference between the two? Hope someone could help! Thank you.

  • cars.usnews.com/cars-trucks/buying-vs-leasing This is for private purchases, though. For tax purposes, business leasing might be better. An accountant would be the person to ask. – RonJohn Dec 27 '17 at 4:22
  • Leasing is like a long-term rental. You don't own the equipment at the end of the lease. That's why payments are lower. Sometimes you can buy out the equipment at the end for a lump sum. There are tax considerations, especially for a business lease or loan. – Rocky Jan 10 '18 at 17:54
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There are some major differences between leasing and financing, but it mainly depends on your personal preferences.

Leasing

If you're looking at buying a new car with all the fancy bells and whistles, leasing is probably your better option.

When you lease a car, you're only financing the amount of the depreciation that will occur during the term of the lease. USNews has a good example of this:

If you buy an SUV for $30,000, and put 10% down, you would finance $27,000 for that car (if you chose to finance).

If you chose to lease that $30K car, the dealership would predict the future value of the car in, let's say 3 years. They predict that $30K car to be worth $16,500 in three years, which is when your lease would be up.

With the lease, you would only finance the difference between the original price and the predicted future value, meaning you'd only have to be paying off $13,500.

So, the main difference here is that leasing is obtaining financing for the difference in current value versus the future value when your lease is up.

Also, with a lease, there are mileage requirements. So, if your friend will be putting a lot of miles on the car, he might want to look into purchasing it with a loan instead of a lease.

Leases also require you to keep the car in good condition.

A pro of a lease is that dealerships will typically cover any maintenance for the first few years, so that's additional money you'd save.

Unfortunately, leasing a car means you won't own it at the end of the lease.

I'd recommend a lease for anyone who wants the newest and best technology and won't be putting a lot of miles on their car.

Financing/Buying

If you choose to finance the car through a loan, you're financing the entire price of the car. Using the same example above, you'd have to finance $30K instead of the $13.5K with a lease.

The huge benefits to financing a car is that you'll own it once the loan is paid off, you can put as many miles as you want on it, and you won't have to worry about the condition of the car.

Financing a car can be more expensive than a lease, especially if you're going with a newer car, but it will turn into an asset for you.

I'm a huge supporter of buying used cars with loans because you will have an asset you can later sell or trade in towards a newer car. If you lease a vehicle, you won't own it and therefore can't sell it.

When buying a vehicle, you typically need to have a down payment.

I recommend financing/buying a vehicle if you're looking at older cars that aren't too expensive, will be doing a lot of driving and if you want to own an asset at the end of your loan.

I hope this helps you and your friend make a decision! Again, it really depends on personal needs and financial abilities, but this is some general advice that should help you out.

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    Good answer - it avoids a discussion of buying with cash instead of financing, but that is not directly necessary to answer the question as-asked. – Grade 'Eh' Bacon Jan 10 '18 at 16:14
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    "A pro of a lease is that dealerships will typically cover any maintenance for the first few years, so that's additional money you'd save." Well, not really. The money will have to come from somewhere; the dealership isn't doing it out of the good heart of its owners or the good heart of the employees of its bank. If maintenance costs are covered by the dealership, then most likely you are paying that money to the dealership in one way or another. – a CVn Jan 10 '18 at 16:14
  • That's true, I should have worded that differently. A lot of people I hear who argue for leasing a newer car is that the maintenance is "covered". It seems to be a common argument for leasing, but you're totally right. It's being paid for in some way, even if it might feel free. – jacquelynp Jan 25 '18 at 14:49
  • It's easy enough to ask the seller "how much can I expect service, repair and maintenance to cost for the first N years?". They'll have a service schedule and quite possibly fixed package deal prices, so should be able to answer this pretty accurately. Pad those figures by, say, 10-25% (adjust to taste), then set the corresponding amount aside monthly. If the car is new and the number of years reasonable (say, five years or less; common lease durations), doing so should be pretty dang close to how it'll actually turn out, assuming that you take good care of the car. – a CVn Feb 26 '18 at 12:26
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On the surface leasing and financing are very similar. You are paying a bank for the right to suffer depreciation on an assets that depreciates quickly. Leasing tends to be less of a monthly outlay as you are renting the asset, which is the difference from a loan. With a loan you own the asset after the term is complete.

Leasing often comes with stipulations about the condition of the vehicle such as mileage and damage. You must return the vehicle with less miles than indicated in the contract and often with no "damage". In that case customizations can constitute "damage".

In the case of heavy equipment one can typically purchase or lease used which greatly reduces the depreciation suffered.

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