There are both obvious differences and subtle variances between buying and leasing a car. Here’s what to know.

The obvious

For starters, at the end of a loan (purchase) term, you own the vehicle as long as all payments have been made. With a lease, once the term (usually 2 to 4 years) is up, you return the vehicle to the dealer and do not own it. With some leases there may be a purchase option to buy the vehicle but terms and conditions can vary widely in this scenario.

Other differences betweening buying and leasing include:

Upfront costs

With some leases, you may be required to pay upfront costs that may not be applicable to purchases. These fees can include security deposits, registration fees, processing fees and more.

Restrictions

Many leased vehicles have mileage restrictions. That is, if you put more than a specified amount of miles (e.g. 12,000 miles) on the vehicle over a specified amount of time (e.g. 12 months), you will have to pay extra fees (usually in the form of a per-mile overage fee).

Insurance costs

In some leasing arrangements, you may be required to carry a higher level of auto insurance than what you currently have. This can vary depending on the type of vehicle and driver but is nonetheless something to keep in mind when considering a lease.

Termination fees

If you attempt to get out of an auto lease early – before the agreed term expires – you may be required to pay early termination penalties or fees.

See also: Considerations when leasing a car

There are a variety of circumstances in which you may seek to refinance an auto loan, but the underlying reason is almost always the same: To save money.

Obtain a lower interest rate

The most obvious and common reason for an auto loan refinance is to save money on interest costs. If interest rates for auto loans are currently lower than the rate that you currently have, it may be time to consider a refinance. Or if you believe that your credit score has increased to a level that will increase your chances of being approved for a lower-interest loan, refinancing may be a good option.

Lower your monthly payment

Another common reason to refinance is to lower your monthly payment. This can be done in a variety of fashions, including:

• Obtaining a lower interest rate, as mentioned above.
• Extending the payment term on your existing loan.

Considerations

Whether or not you will benefit financially from an auto loan refinance depends on many specifics. With that in mind, here are a few things to look for when considering a refinance:

• Make sure that you will not be charges any prepayment fees by your existing lender.
• Be aware of any additional fees that may be associated with a refinance, including registration and lien holder fees.

See also: Who should refinance a car?

If you choose to pay off your auto loan in full, you may notice that the payoff amount is different (higher) than the balance of the loan from your last statement.

First of all, congratulations! You’re about to pay off your auto loan, which is definitely cause for celebration.

Secondly, it is normal for the payoff amount for an auto loan to be higher than the balance. A payoff amount for a simple-interest loan, like many auto loans, will be higher than the balance due to the interest that has accrued since your last statement.

In addition, you may be charged a prepayment penalty by your lender if you choose to pay off the loan within a specified time period.

Be sure to check the terms and conditions of your loan before attempting to pay it off in full. You should be able to discover any fees or penalties that may apply.

A prepayment penalty is a fee charged by a lender to the borrower when the borrower pays off the loan early.

Not all lenders charge prepayment fees and even those that do often have a certain time period when the prepayment penalty will apply. That is, with some loans a prepayment penalty will only be in effect for a specified period of time, such as two years.

For example, an lender may charge a prepayment penalty if the auto loan is paid in full within the first two years of the loan. In this example, a borrower paying off the loan before two years would be charged a prepayment penalty but that same borrower paying off the loan after the initial two-year period would not be charged this type of fee.

Be sure to inquire about any prepayment penalties that may apply to your next auto loan before signing on the dotted line.

While auto loans come in many forms, shapes and sizes, certain term lengths are commonly used.

Auto loan payment terms typically range from as short as 1 year (12 months) to as long as 7 years (84 months). Howeverm term lengths of 84 months are not very common, and some lenders will limit the length of a potential loan to a maximum of either 4 years (48 months) or 5 years (60 months).

Payment terms lengths can depend on a number of different factors, including on the specific type of auto purchased, whether the car is new or used, the credit history of the applicant, and the policies of the lending insitution.

Choose your terms wisely

If a lender is willing to allow you to draw the terms of your auto loan out for several years, don’t immediately jump at the option before looking into what it means in the long run.

The most common auto loan amortization is 60 months, or five years. This is an industry standard, although other loan terms can be offered including lower (48 months or less) and higher (72 months or more) terms.

One thing you should realize is that in general, the higher the number of months your loan is amortized for the higher your interest rate may be. This does not, however, usually apply to loan terms under sixty months.

In other words, whether your loan is 36-months or 48-months, you will probably have the same interest rate. It’s when auto loans creep past the 60 months amortization that interest rates may begin to climb.

Keep in mind that although loans with longer repayment terms often have lower monthly payments than short-term loans, you do usually end up paying more interest over time.

For example, a 72-month loan will have a lower monthly payment than the same loan amount and interest rate given with a 48-month repayment term. The borrower, however, will end up paying more interest overall with the 72-month loan, despite the lower monthly payment.

See our monthly auto loan payment calculator to estimate what your monthly payment will look like with differentinterest rates, repayment term lengths, etc.

Instead of securing an auto loan with a longer amortization you may want to consider putting a sizable down payment on the car (if possible). You may also consider simply buying a car that is less expensive so you can avoid extending the repayment period and also avoid ultimately paying more in interest.

Recommended resource: Auto loan calculators

Look for more than rates

When shopping around for a car loan you may find yourself consumed with finding the lowest auto loan interest rates possible. Keep in mind, however, that there is more to a good loan than just the interest rate.

You don’t want to be lured into a particular car loan because you are blinded by an attractive interest rate only to later discover that the lender tacks on various fees and insurance coverage that makes the loan more expensive. There are certain terms that you should be on the lookout for when you apply for a car loan.

Any time you see the words “insurance” or “protection” accompanied by a dollar figure, you should ask for clarification because this can be a lender’s way of tacking on unneeded coverage in order to get more money.

Also look for the term “prepayment penalty” on the loan paperwork, because this means that you will be charged a fee if you pay the loan off early or refinance the loan.

Take a look at the fees that would be associated with late payments and other aspects of the loan, and be sure that the low interest rate you are receiving isn’t going to be overshadowed by other costs associated with the car loan.

Auto loan terms to know

Auto loans can be relatively easy to understand, but if you aren’t familiar with some of the common terminology it can be very easy to become a little confused about the process.

For example, when you seeincredibly low auto loan interest rates advertised followed by the terms “OAC” or “WAC” you should know that this means “On Approved Credit” or “With Approved Credit.”

In other words, simply because these low interest rates are advertised it doesn’t mean that you will be approved with that particular rate. Only applicants with the best credit scores receive these rates, while all others are usually offered interest rates that are higher.

Another auto loan term that can be confusing is “We Finance Everyone” or similar wording. This type of claim is common at dealerships that do a lot of business with people who have less-than-perfect credit.

If an applicant’s credit is extrememly poor, the dealership will often require that applicant to make make a hefty down payment in order to secure the loan. In addition, loans given to those with less-than-perfect often carry higher-than-average interest rates and may include additional fees as well.

When researching your auto loan options, be sure to watch for these types of terms and be aware that the latest and greatest deals are often reserved for those with the highest credit scores.

What to know about auto loan refinancing

Compared to refinancing your home, refinancing your car loan is much easier to do. The process of refinancing your car can save you money while being much simpler and quicker than refinancing your house.

When you should consider refinancing

If the APR (annual percentage rate) on your existing car loan is at a much higher interest rate than you see currently advertised, it may be time to shop around for other lenders willing to refinance your car loan.

Oftentimes, a car buyer who has less-than-perfect credit has to contend with a high interest rate at the time of purchase. But after a few months or years of making prompt payments, that buyer’s credit score could potentially improve, and, in turn, that buyer may now be able to secure a loan at a lower interest rate.

Another scenario involves a car buyer with good credit who secures an auto loan only to see interest rates drop on auto loans months after his/her purchase. In both of these cases, looking into refinancing the current loan could be a wise move.

How to refinance your car

If you have decided on refinancing your car, make it a point to get a copy of your credit report and your credit score. Knowing your credit score can give you a decent idea of what kind of interest rate you should be able to obtain.

Call your current lender and ask for the outstanding balance on your car loan or the payoff amount in case there are penalty fees for prepaying your current loan. Seek quotes from multiple lenders and compare the different loans. Scrutinize your options closely. Upon approval of your refinancing, the new lender should supply you with instructions on how to pay off your current car loan, forward the title, and transfer the lien accordingly.

Low interest car loans

If you have good credit and do not have an abundance of debt you can usually find an attractive interest rate for a car loan. Low interest car loans are not too difficult to find if you know where to look for them.

Start by checking with the financial institution that you already do business with. Some banks and credit unions offer lower interest rates and easier application processes to applicants who already have accounts within the system.

In particular, credit unions usually offer some of the lowest interest rates for both new and used car loans. Be sure to also conduct an online search for low interest rates because you will surely find some very competitive rates offered by various lenders.

If you’re wondering how to get the very lowest interest rate on a car loan, here is one general formula: A person with excellent credit who can afford a sizable down payment and has a low debt-to-income ratio can generally get the best deals. In addition, if that borrower is purchasing a new car and amortizing the loan for forty-eight months or less, he/she will often get a very competitive interest rate for the car loan.

Even if you do not fall into this category exactly you can still find some great interest rates, you just have to take the time to look for them. Be sure to research all of your possible options – don’t simply jump at the first opportunity presented to you.