After saving up for the last year or so, you’re ready to start looking at cars. You’re done riding your bike to work and taking public transportation, both have their benefits, sure, but after getting to work late after so many times of leaving the house extra early to avoid being late to begin with, you’re tired of it.
Never having owned a car, you’re not sure whether you finance or lease the vehicle. You can’t buy it outright, so these are your only two options. Alright, yeah, okay…technically taking public transportation is still an option, but it just doesn’t work for you anymore. It’s time to bite the bullet and get a car. So, to get back to your question: should you finance or lease your car?
What it Means to Finance Your Vehicle
Financing a vehicle requires that you take out a loan for a vehicle you wish to purchase. Financing a vehicle can be done one of two ways: shoppers can use direct lending or dealership financing. In financing a vehicle the vehicle is yours after a number of payments.
Pros of Financing a Vehicle
-You won’t have to pay the full price of the vehicle upfront. Instead, you will be making a number of smaller payments on a monthly basis, similar to mortgage or student loan.
-Auto dealers will offer rebates to customers who are looking to finance their new car.
-Auto dealers will offer customers looking to finance a new car a zero percent interest rate on the car loan for up to six months. This would allow you to put extra savings away.
-Financing the vehicle will help you build your credit score. Building your credit score will help you to earn lower interest payments on other loans. When you compare car insurance rates online, you will be asked for your credit score. If it’s good, you’ll earn a discount on your auto insurance!
Cons of Financing a Vehicle
-Financing a vehicle means you have another bill to pay every month.
-Financing a used vehicle usually means a higher loan payment. Why? As soon a vehicle is driven off the lot, it depreciates in value. Its low value makes it harder to insure, which in turn increases the loan cost.
-You are required to make a non-refundable down payment when you finance a vehicle.
What it Means to Lease Your Vehicle
Leasing a vehicle is different from financing a vehicle in that you do not own the vehicle. A leased car is essentially a rented car. You make a certain amount of payments for a number of years to use the vehicle under contract. Once the contract is up you have the option to purchase the vehicle out right or have it returned to the dealership.
Pros of Leasing a Vehicle
-Leasing vehicle payments are less expensive than finance loan vehicle payments.
-Leasing a vehicle means you are not tied to one vehicle for 10 years. The typical leasing contract runs for three years. After your three years are up with one car, you can lease on another new one. Who doesn’t love that new car smell?
Cons of Leasing a Vehicle
-You don’t own your leased vehicle, the dealership does. This means your car can be repossessed without a moment’s notice.
-Leasing contracts dictate the amount of driving you can do in the car. If you go over the mileage as stated in the contract, you can be fined.
-You cannot sell a leased vehicle. If your financial situation should change and you can no longer afford the car you do not have the right to sell it. You and you alone are responsible for the lease payments, at least unless you are able to find someone else to take over the lease.
What do you think? Which is better: financing or leasing?