To Buy or To Lease: Financing Your New Car

When it comes to getting a new car, you have two options – buying it or leasing it. And, according to recent statistics, leasing is becoming an increasingly popular option, with over 30% of Americans choosing this option over buying.

Financing a New Car – Should You Buy or Lease?

However, both of these choices come with their advantages and disadvantages, and we’ll explore these below:

Should You Buy Your Next Car?

How to Afford a Car You Really WantIf you’ve always bought your cars outright, you’ll have enjoyed the fact you can keep them for as long as you want and can trade or sell them when the time’s right for you. You’ll have probably enjoyed that feeling of ownership too. Equally, if you’re one of the many who’s used an auto loan to finance your new car purchase, you’ll have basked in that feeling of finally paying off the loan and the car being yours.

When you buy a car, you put equity into it, which is your down payment. In contrast, when you lease a car, the money you’re putting into it (which could be thousands of dollars), provides you with zero equity. And, even though you may be paying for the car on a monthly basis, you’re gaining increasing amounts of equity as you do this. Then, once your loan term expires, you have full ownership of the car, which could amount to several thousand dollars, if not more.

Once you’ve done this, you’ll have the peace of mind that you’re driving around in a debt-free vehicle, which you can continue to enjoy or you can use to put towards a new car. And that’s not to mention the fact that you can modify the car in any way you want and aren’t hit with charges if the car has a high mileage.

Nevertheless, there are some downsides to ownership, and a lot of this is found in the responsibility you have for the repairs and maintenance of your vehicle – which can start to add up. However, this might be a risk worth taking, particularly if you have a warranty on the vehicle which runs out at the exact same time as your loan payments do. Because you’re not paying your monthly loan fees anymore, you’ll have extra cash to carry out any necessary repairs.

Furthermore, you’ll often find that the majority of new vehicles on the road today are incredibly reliable, which makes the risk factor much lower. And, if you are concerned about the financial costs involved in fixing your car or truck, you could always weigh up the advantages of taking out a longer warranty.

Should You Lease Your Next Car?

Leasing can become an addictive habit because all of the expenses related to your vehicle – including loan payments, fees, registration, interest and the initial purchase price – are included in monthly payments which are divided up over a period of time. The downside?

Even though you’re paying for this vehicle over two or three years, you’re only really renting it. That’s because the payments you’re making are simply covering the difference between what the car will be worth when your lease expires (its depreciation) and its current selling value.

Depending on your financial situation, the length of the lease, interest rates and incentives, you’ll probably find that the monthly payments you have to find for a leased car are lower than the loan payments you’d make on the same vehicle. Therefore, leasing will probably mean you can afford one of the best cars available, which you might not be able to do if you’re buying outright or taking out a standard car loan. Equally, if the warranty period extends across your entire lease term, you won’t have to fork out for any repairs during this time.

With that in mind, leasing is a great option if you don’t do a lot of miles (leases normally state a certain amount of mileage that can be done, otherwise, you’ll face an additional charge); you don’t want the financial responsibility of having to have the car repaired; you want a new vehicle every few years and you don’t want to be able to modify the vehicle.

Another advantage of leasing a car is you’ll never have to go through the rigmarole of selling your car. As long as you look after it, don’t exceed the mileage limit and return it in reasonable condition, you can simply hand the keys over and leave, or drive away in another new car. Or, if you’ve decided that you want to keep it, you can buy the car at its depreciated value.

Whether you buy or lease a car depends on your own personal preferences and financial situation. But it’s always a good idea to weigh up the pros and cons of each before getting your next vehicle.

Nathan Cartwright writes about money, offering a little wisdom to those seeking advice on spending, saving, debt, mortgages and so much more.

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