Buying a new car can be an exciting, exhilarating time. However, the question of payment invariably arises. While most consumers lack the money to pay for a car upfront, two other forms of payment are both quite popular. Leasing and financing are the two of the most common ways to get a new vehicle. However, how do you know which method is right for you? What does each offer? Both methods offer benefits and drawbacks; here’s a quick break down.
Auto Leasing: On the surface, leasing a new car is the least expensive way to purchase a car. In addition, you often find that the monthly lease payments are lower than if you financed your car. You are able to trade your car in easily at the end of the lease and get to drive newer vehicles on a regular basis. This is a great option for those who want a new set of wheels every couple of years.
However, leasing a car is much like renting an apartment. You shell out cash each month for something that you will never own. Because you will never own the vehicle, leasing is actually more expensive than purchasing a vehicle. When you finance a car, your payments end, at some point. It is not so with car leasing.
In addition, leasing has a few other drawbacks. Severely limited annual mileage is one of them. If you go over the mileage stipulated in the lease agreement, you will have to pay for it. You will also have to pay for any wear and tear on the vehicle at lease termination. This can quickly add up to a wallet-draining experience.
Auto Financing: Financing your car seems to be more expensive than leasing. However, it does have considerable advantages. First, you will actually own your car when the last payment is made. Second, you can drive your car as much as you wish – it’s yours! Finally, financed payments can be almost as low as some lease payments, depending on your credit score, you down payment and the company with whom you finance your car.
Auto financing does have a few drawbacks, as well. First, your warranty will eventually expire. While leases are usually always covered by the manufacturer warranty, financing a vehicle is different. Your warranty will expire at some point (usually at the point that you need it most). Once this occurs, any repairs will be out of pocket.
Second, financing can be more expensive in the beginning. While you can often reduce the amount of your monthly payments with smart shopping and bargaining, those payments will likely still be more expensive than a lease payment. However, the savings offset that initial expense when you pay off the car.
Both leasing and financing offer viable options for those who find themselves in need of a new car. Your budget, driving needs and personal wants will dictate which method you choose in the end. Regardless of the method you choose, shop around for the best deal and you’ll be much happier with the result.