It is always a big decision when it is time to buy a new car. Lot of things come to mind to be considered and this ranges from buying a new or used car, how much to save down payment and what type of financing you would like for your vehicle. Weighing your options and planning carefully is very important when you want to get a car.
For some, they are able to save and make their vehicle purchase outright, without financing. For most people, however, they’ll need to decide if they’d like to finance or lease their new vehicle. But what are the benefits of one over the other? In this article, we’ll discuss the difference between financing and leasing your car, and the pros and cons that you can expect from them both.
What is financing?
You are making a commitment to purchase it when you opt to finance your new car. You will be borrowing money from a bank or financial institution in order to do so, so that you can make your purchase from the car dealership or private seller. Financing a car means you’ll be taking on substantial debt and you’ll have to make monthly payments towards that debt with the added APR charges tacked on.
What is leasing?
The most popular option outside car financing is vehicle leasing. You will deal typically directly through the dealership instead of financial institution when you decide to lease a vehicle. Monthly payments will be made towards the car you are driving just like when you finance, however at the end of the lease which is usually 2-4 years, you will return the vehicle to the dealership. This process can be compared to that of a long-term rental. There are some lease arrangements, however, that will allow you to convert the vehicle to a purchase at the end of the agreement.
Pros and Cons of Financing Your Car
It is usually a large financial commitment when it comes to purchasing a car. This makes the pros and cons weigh a lot because the method is important before you make your final decision. Below are some points you should take note of.
- The vehicle will be yours to customize if you wish. Change the paint, add a spoiler, place your favorite bumper stickers all over the back windshield – the choice is yours.
- You can drive the car for as long as you like, as long as you make your finance payments on time.
- The car will be yours once it’s paid off.
- You can get trade-in value for the car once you decide to purchase a new one.
- Payments tend to be higher than that of a lease.
- You’ll be responsible for all repair costs outside of a warranty.
- It can take longer to reach the point where you can trade in for a newer vehicle.
Pros and Cons of Leasing Your Car
Leasing a vehicle may be the right decision for you financially; however, it’s important to weigh the pros and cons, just as with financing, before you go this route. Here are some things to consider:
- You’ll have a warranty on the vehicle throughout the lease arrangement.
- Your payments will usually be lower than that of a purchased vehicle.
- You can trade your car in for a newer one once the lease is up, typically every 2-4 years.
- The money you pay into your lease is not an investment towards ownership.
- You will be limited on how many miles you can drive the car during the lease.
- You’ll typically need to have a credit score of 700 or higher.
- You’ll need income that’s predictable each month.
- Over the course of the lease, you’ll probably end up paying more for the car than if you had chosen to finance originally.