Buying a vehicle is one of the biggest purchases one will ever make, so it is not only important but also wise to take a look at all the available options. Both financing and leasing have their own set of pros and cons. The most obvious difference between finance vs. car leasing is that one can get a new vehicle every few years with leasing and does not have to deal with the hassles of selling the vehicle later.

Financing involves making payments towards the vehicle which builds equity, and outright ownership once the loan is paid. However, perhaps the biggest factors to consider are the financial ones. Listed below are the factors to be considered between finance vs. car lease:

1. Monthly cash flows
Leased vehicles often tend to have lower monthly payments as compared to financing vehicles with the same loan terms. This is because one is paying for the depreciation of the vehicle during the years of the lease rather than the cost of the vehicle. So, if you need more cash on hand every month, go in for leasing.

2. Initial fees and down payment amount vs. savings
One needs to check how much they have saved up to pay for the huge down payment and initial fees amounts when it comes to financing a vehicle. Usually, leases feature lower down payments or waived down payments, and lesser taxes and fees too. So, if you have a sizable amount saved, that isn’t an issue. However, if you do not, think about leasing.

3. Miles tend to be driven
Are you going to drive around a lot? Let’s say, more than 12,000–1,5000 miles a year? In that case, financing the vehicle is better. If one drives a lot more than 12,000–15,000 miles, depending on the lease agreement, they will have to pay extra, as much as 15-20 cents for each mile. It could be lesser (around 10 cents/mile) if the extra miles are bought upfront by the lessor when they negotiate the lease. What’s more, if one plans on trading in the vehicle that they bought, then they will be penalized for the above-average mileage too.

4. How hard one is on the vehicle
If one runs the risk of the vehicle being damaged by kids or other hazards, or is prone to getting scratches on the vehicle, then leasing isn’t for them due to high wear-and-tear fees.

5. Purpose for which the vehicle is driven
If the vehicle is driven for business, then leasing allows for the deduction of a portion of the depreciation and financing costs on the taxes. However, interest on loans to buy a vehicle are not deductible.

6. Length of time one plans to keep the vehicle
This is perhaps the biggest consideration between finance vs. car lease. If one really only wants to drive the vehicle for a couple of years, then leasing makes more sense. That being said, one will end up paying a lot for getting out of the lease before the term is up. On the other hand, financing a vehicle is almost always cheaper in the long term, since the longer the vehicle is owned, the more one saves by buying.