Is it Better to Lease or to Finance a New Car?

Buying a car is an exciting time — the thrill of the hunt for the perfect car, the elation that comes when you find “the one,” the happiness you feel when you take that first drive home from the dealership after closing the deal on your dream car. But wrapped up in all that excitement are some very big decisions that have consequences for many years down the road. One of the main factors you need to consider when buying a new car is how you plan on paying for it.

When buying a car, you have three options: purchasing, leasing, or financing. Purchasing a car means paying cash for the full price of the car. The car is immediately yours, and you receive the title right then. Leasing the car involves paying for the use of the car for a predetermined period, usually three years. Financing a car involves taking out a loan to pay the price of the vehicle and then paying back that loan over a set amount of time. But which option is the best for you? Learn more about your options below.

What’s Involved With Leasing a Car?

When you lease a car, you’re essentially paying for the opportunity to use that car for a set period, usually three years. You are essentially paying the value of the depreciation of the vehicle over that period. Depreciation is the loss of value of a car, so if you lease a car for two years, you’ll pay the amount of depreciation that the car is expected to experience over the two years.

When you lease a car with a dealership, you’re expected to pay some fees upfront before you take it home. These costs include the first month’s payment, a refundable security deposit, acquisition fees, taxes, and registration fees, among others. Each month, you’ll pay a monthly payment to cover the depreciation of your vehicle plus interest and taxes.

Benefits of Leasing a Car

The biggest benefit of leasing a car is a lower monthly payment. Since you’re just paying for the depreciation of the car for a short period of time, you’re paying for far less than the total amount of the vehicle. You can drive a brand-new vehicle that’s equipped with the latest features and technology while the manufacturer’s warranty still covers it. This means you’re driving the car during its prime when things rarely go wrong. And if they do go wrong, the warranty should still cover any maintenance or repair costs.

Since your monthly payment will be lower than if you financed a car, you’re usually able to drive a more expensive vehicle by leasing it. Once the terms of the lease are up, you can return the car to the dealership and not worry about the hassle of selling it when you’re ready to move on.

Drawbacks of Leasing a Car

Leasing a car is not without its disadvantages. The biggest drawback is that you’ll never be the owner of the vehicle. You’re not earning any equity in your vehicle when you make your monthly payments, and you’ll never get to a point where you pay off the car. Additionally, you must make sure to keep the car in good shape when you’re driving it. Once your lease is up, the dealership can charge you excess wear-and-tear fees if you have any scrapes, scratches, or tears.

Leased vehicles also come with mileage restrictions, typically anywhere from 10,000 to 15,000 miles per year. If you go over this limit, you’ll be charged extra at a per-mile rate, typically between 10 and 25 cents for each mile over the limit. Since you’re not the owner of the vehicle, you’re not allowed to make any changes or alterations to your car while it’s in your possession. If you decide you don’t like the car and want to get something else before your lease terms are up, you’ll be subject to very costly early termination fees.

What’s Involved With Financing a Car?

When you finance a car, you’re taking out a loan for your vehicle, either directly from the dealership or through another financial institution. You’ll need to pay a down payment, taxes, registration, and other fees before you can take the car home. Your monthly payment will be higher than it would be if you leased the car since you’re paying for the total amount of the vehicle. Your monthly payment will also vary depending on how much money you have for the down payment.

Benefits of Financing a Car

When you finance a car, you acquire equity in the vehicle each month. If you decide to sell the car before the loan has been paid off, you can use the money from the sale to pay off the loan. Once the loan terms end, the car becomes yours, and you’ll be able to go months or years without having to make a car payment.

Since the vehicle is yours, you can make any modifications you want, and you don’t have to worry about extra charges for excessive wear and tear. Unlike with leasing a vehicle, there are no mileage limitations involved with financing a car.

Drawbacks of Financing a Car

When you finance a vehicle, your monthly payment will be higher than if you lease it. This means that you’re more limited in the types of cars you can afford. You’re also going to be responsible for all maintenance and repairs once the manufacturer’s warranty expires.

 

Ultimately, the decision to lease or finance your vehicle depends on what’s important to you as the driver. If you enjoy driving a brand-new car every couple of years or are working on a tight monthly budget, leasing a car might be your best option. If you care more about saving money in the long run by gaining equity in your vehicle, or if you drive often and take long road trips, financing a car is the way to go.

At Eskridge Chevrolet in Guthrie, Oklahoma, we’re here to help you make your decision. Contact us today if you have any questions about leasing or financing your car.

 

Happy Customer and Agent Reading the Contract by Gustavo Fring is licensed with Pexels License 

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