Key Takeaways:
• Leasing is like a rental agreement where the payments will be made to use the car for a determined period.
• Financing a car is generally better if you want to build equity and invest in a vehicle.
• With a lease, buyers have the guarantee of an ongoing manufacturer’s warranty and enjoy lower monthly payments.
• If you can afford to put money aside for building equity on a new car, then you should probably choose to buy the car.
There are various factors to consider when you’re thinking about leasing or financing a car. Leasing may be a good option if you don’t have the cash to buy outright or if you like lower monthly costs. Buying is the better option if you’re planning to keep the car for the long term or want to customize it. When comparing your options for leasing vs. buying a car, there are specific questions you need to ask yourself. These include:
• How long are you planning to keep the car? If you’re planning on keeping the vehicle for several years, buying may be a better option.
• Can you afford the car’s upfront costs? Leasing generally requires less money, so it may be a better option if you’re short on cash.
• Do you want to customize your car? Buying is a more suitable option if you plan to modify the vehicle.
• Are you worried about repair costs? Leasing generally includes a warranty, so you may not have to worry about repairs.
But there’s more. Let’s discuss other essential factors you must consider before making a final decision.
Leasing vs. Buying a Car 101
Leasing is like a rental agreement where the payments will be made to use the car for a determined period. Once the contract expires, the vehicle will be returned to the dealer, and the lessee will get nothing. They’ll have to sign another lease agreement to continue driving the same car or a new one.
Financing a car, however, means that you’ll own the car. This option is generally better if you want to build equity and invest in a vehicle. However, new cars depreciate in value quickly, and warranty periods tend to last 36,000-50,000 miles or 3 to 4 years.
Additionally, when financing a vehicle, the buyer will pay the total cost of the vehicle over a determined period. This may seem like a slightly more complicated process, whereas the lessee will pay the difference between the car’s sale price and the depreciated value over the lease term.
Both methods include interest costs, but the interest rate will depend on the lender.
The Pros and Cons of Leasing
The buyer’s mentality and circumstances dictate the debate between leasing vs. buying a car. The crowd that would choose to finance is arguably more concerned with investing and is prepared to commit for the long term.
On the other hand, they may prioritize the protection and safety of an ongoing manufacturer’s warranty. They might as well enjoy the novelty of driving a vehicle with the latest technology every few years. Arguing about the satisfaction of getting something futuristic is difficult.
Apart from the peace of mind, the lessee will always have their vehicle under warranty which is perhaps the most significant benefit of leasing a car. In contrast, when financing a vehicle, the buyer will have to bear the entire cost of ownership.
Leasing, in general, comes with lower monthly payments. This is because the lessee only pays for the vehicle’s depreciation during the lease term, usually three years. When financing a car, on the other hand, the buyer has to pay back the entire loan amount plus interest.
At the end of a lease, the lessee can purchase the vehicle or return it to the dealer. If they choose to buy it, they would only have to pay the vehicle’s residual value, which is usually lower than its market value. With financing, on the other hand, the buyer owns the car outright.
Many people structure their finances according to what they can pay each month, and with a lease, it’s more palatable. Even though the mileage restrictions can be a sticking point for many people, it’s essential to consider your car ownership history and driving habits. For instance, if you can track how many miles you can drive a car each year, you’ll better understand how high or low the mileage cap on the lease needs to be. Moreover, if you get bored with a car in a few years, leasing is the best option.
Pros and Cons of Financing a Car
Whoever can afford to put money down for building equity on a new car will probably choose to buy the car. But most people finance their car because they can’t afford the total price of the vehicle. In this case, you’re building equity on someone else’s money.
There are specific rules to follow when financing a vehicle. The first one is that you should get pre-approved for an auto loan before heading to the dealership. This will give you more negotiating power at the dealership and help you avoid being taken advantage of by a salesperson.
The second rule is never to finance a car for more than four years. This is because cars depreciate quickly, and after four years, you’ll be upside down on your loan, which means you’ll owe more than the car is worth.
If you follow these two rules, financing can be a great way to get a new one without paying the total upfront price. Unsurprisingly, the pros of financing correlate with the drawbacks of leasing. For instance, unlike a lease, there are no mileage restrictions, and you can drive your car as much as you want.
Leasing vs. Buying a Car: What’s Better?
People deciding on leasing instead of financing should consider other details besides mileage restrictions and monthly payments before signing an agreement. It’s best if you contact a certified dealer who offers the car model you are interested in financing or leasing.
Dealer and manufacturer websites are often the best sources to remain up-to-date with the latest deals. However, always be cautious of deceitful dealerships that advertise low monthly payments, which often include high fees and taxes that will increase the actual price.
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Make sure to effectively negotiate your lease terms and ask the right questions to understand the final monthly payments and mileage restrictions. Only decide once you are comfortable with the options.
Carl Cannon Chevrolet Buick GMC Cadillac provides its clients with the ultimate care-buying and servicing experience in Jasper, AL. You can trust our team to help you out with all your automotive needs. Visit us today!
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