Leasing vs Car Loan Comparison for Kids and Teens
This video does a comprehensive leasing vs car loan comparison in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about leasing and auto loans, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.
Suitable for students from grade levels:
- Kindergarten
- Elementary School
- Middle School
- High School
The topics covered are:
- What is leasing a car
- What is a car loan
- Which is more expensive: a car loan or leasing
- Leasing vs car loan: Other differences
- Which is right for you
What is leasing a car?
Leasing is a way of financing a car, that’s different from a car loan.
Leasing is a type of long-term car rental – for around 2-3 years, usually offered by a car dealership.
You make monthly payments during this time, and after the term is over, you can either renew the lease, purchase the vehicle, or give the car back to the dealer.
What is a car loan?
When you take out a car loan or an auto loan, you are purchasing the car – not renting it. You can buy a car outright by paying the full price upfront.
Or, like most people, you can take out an auto loan and make monthly payments of principal and interest until you have paid the loan off in full. After this, you’ll have full ownership of the car.
Leasing vs car loan: Which is more expensive?
The upfront costs, like down payment, as well as the monthly costs are higher in a car loan as compared to leasing, as with leasing you are only paying for the right to use the car.
This means for a given monthly payment, you can drive the latest model or a more luxurious car with leasing than you can with a loan.
But, the monthly payments with an auto loan stop once it is paid off. This is unlike leasing, where you continue to pay as long as you use the car, making it very expensive in the long run.
Are there any other differences?
Besides the most obvious difference – ownership, which you enjoy with a car loan but not with leasing, there are some key differences.
In general, there is less hassle with leasing. For instance, the ongoing repairs and maintenance are mostly covered by the manufacturer’s warranty during the lease period.
This doesn’t apply to a car loan, as the warranty may not last the whole time you own the car.
Also, when your lease ends, you can simply return the car to the dealer or swap it for another car without having to worry about selling or buying another car.
Having said that, leasing comes with a lot of restrictions – there is a mileage limit, which when exceeded, can result in hefty fees. You cannot customize the car as per your liking, and there are extra charges for excessive wear and tear.
With a car loan, there are no such restrictions and you can do pretty much whatever you want with the car.
Lastly, getting out of a lease before the term ends can be quite difficult and there will be an early termination penalty, possibly as high as the entire lease amount, if you decide to end the lease early.
With an auto loan, you can sell the car anytime and use the money to pay off the remaining loan or as the down payment for your next car.
Leasing vs car loan: Which is right for me?
The decision depends on your financial situation, lifestyle and driving needs.
If you’re someone who always wants the latest technology and likes to switch cars every few years, doesn’t want the hassle of owning and maintaining a car, can’t afford high monthly payments, or needs a car for the short term, leasing is the clear choice.
However, buying a car – whether through a loan or outright – and keeping it for 10+ years will always be significantly less expensive than leasing, and allow for much more flexibility.
So it’s the better choice for the majority of people.
Download Transcript: Ideal for Use by Teachers in their Lesson Plan to Teach Kids & Teens
