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Difference between car leasing and car loan - Explained.

Car Loan vs Lease 


Buying a car can be quite a task as there are many options to choose from. The mode of money varies based on our choice of car, affordability and so on. The options available in the market include savings and car loans. Leasing is a different choice that is introduced to you in this blog as a new term. Buying a car with your savings is a whole other ball game and does not have many complexities involved so the content below compares loans and leases and identifies the better choice. 

Car Loans

Car loans are the most convenient option to purchase a car. Loans let you borrow some amount of money for a particular period. During this time, the amount we take should be paid regularly inclusive of some interest. This systematic payment is called an instalment. The interest we pay is termed as EMI( Every Month Instalment) and it is a small percentage of the amount we borrow. Initially, we make a downpayment or a small amount of advance payment while availing of a loan. It is advised to avoid loans that do not require down payments as the overall money we pay back to the lender can be a fortune.  The car we buy acts as collateral for a car loan i.e. if we fail to repay the loan, the lender can claim ownership of the car. Additionally, loans are the most widely adopted financial method for a new car. Lastly, the eligibility for a loan is affected by factors such as income, CIBIL score etc. 

Car Leasing 

Leasing has gained popularity in the past few years due to its effortless process. Leasing works like a rental agency where a leasing firm rents their car for a particular time and we have to pay money as rent monthly. Some firms also lease their cars with a mileage boundary( as in allowed to drive only for some miles). The duration of a car lease is between 2 to 4 years and all the taxes (road tax, green tax )and insurance are taken care of by the firm. The car has to be returned to the leaser at the end of a tenure and any damage done can cost a lot. 

Pros and Cons of Loans 

  1. Pros
    A. Saves money overall on vehicles for long-term usage.
    B. The whole cost is not paid upfront and the finance is spread which leaves us some money for our other short or long-term goals.
    C. Car loans help improve the credit history which down the lane can assist in taking more loans.
    D. A few loans, when paid off earlier can cost us very less and save us a lump sum. Moreover, you become the owner of it.

  2. Cons
    A. The money paid as EMI along with the rate of the car is higher than the actual price.
  1. If failed to pay the loan, the lender takes ownership of the car.
    C. Cars are depreciated assets and the amount we pay by the end of their tenure can nowhere be close to its resale value. 

Pros and Cons of Car Lease

  1. Pros
    A. Saves a lot of money for cars required for a short term.
    B. Road tax, maintenance expenses, insurance or other recurring costs is taken care of by the leaser.
    C. Leasing can enable us to drive high-priced cars without having to pay a lot. Additionally, we can choose the latest models with extra features.
    D. A few leasing contracts may cover service costs as well.
    E. For business owners, this could save tax.

  2. Cons
    A. We don't own the car and we have to return the car to the leaser.
    B. Expensive if opting for a long-term.
  1. If you end the contract sooner, there is an early termination fee.
    D. Excessive wear and tear of the vehicle attract additional costs.


Difference between Loan and Lease 





The car is owned by us and our desired time is taken to pay the amount.

The car is just rented by us for a specific period and it has to be returned back.

Down Payment 

Higher down payment is mandatory for a better loan scheme.

No downpayment is required as it works as a rental.


The EMI we pay is a part of the actual cost of the car added to its interest money.

The money paid as rent is just for the usage of the car.

Early Termination

Either the loan is paid off earlier to claim full ownership or it can be resold to pay the loan balance.

Early termination of the lease tenure makes us pay a fee.


Our car, our choice. 

The maximum limit is around 12,000 km per year beyond which we have extra charges.


Any extras can be added or removed at our free will.

While returning the car, the additional features have to be removed and changing the texture of the car is not permissible. 

The lifestyle, driving requirements, and financial position of each individual will determine whether to lease or buy a car.

If you want cheaper monthly payments, wishing a new automobile with new technology every few years, and don't want to stress about some responsibilities, like selling your car, leasing can be appealing. You might not normally be able to afford a premium vehicle, but leasing can let you get one.

When you purchase a car, you either get ownership of it outright if you paid cash or you accrue equity when you settle a car loan. You'll be in complete control of your costs and able to service or repair them as necessary.

In the long term, purchasing has shown to be a wiser financial choice.


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