Lease Vs. Finance A Car: Which Is Right For You – 2022 Update!

Key Takeaways:

• Car financing is the more traditional way of paying for a car. You take out a loan to purchase your vehicle.
• The car serves as collateral. If you don't make payments, the lender can repossess the vehicle.
• The terms of a car loan vary depending on the lender.
• Leasing a car means you rent it from the dealership.
• The terms of a lease vary depending on the dealership.
• You make monthly payments during the lease term but don't own the car when it ends.

When purchasing a car, the question of how to pay for it often arises. There are two main options: car financing and leasing. Both have advantages and drawbacks, so deciding which is right for you can be hectic. This post will scrutinize the differences between leasing and financing to ensure you make the right decision.

Car Financing - What Should You Know?

Car financing is the more traditional way of paying for a car. It's when you take out a loan to purchase your vehicle. The car serves as collateral for the loan, which means that if you default on the payments, the lender can repossess the vehicle. Car loans are available from numerous institutions. The terms of a car loan vary depending on the lender, but they typically last between two and seven years.

Car Leasing - What Should You Know?

Leasing a car means you rent it from the dealership. You make monthly payments during the lease term, but you don't own the vehicle at the end of the lease. Leasing is available through dealerships and some manufacturers. The lease terms vary depending on the dealership, but they typically last between two and four years.

Is it Beneficial to Pay Cash for the Car at Once?

Paying cash for your car has several benefits. One is that you own the vehicle outright and don't have to make monthly payments. This can save you money since you won't pay interest on a loan. Another benefit is that you may get a lower price on the car if you pay cash.

There are a couple of drawbacks:

• You may have to invest a large amount of money in your car, which could be better used for other investments.

• If you have an accident or the car needs repairs, you'll have to pay for them out of pocket since you don't have a warranty.

Paying cash for a car may not be the best option for everyone, but it's something to consider if you desire to save money eventually.

Benefits of Car Financing

You Don't Need Any Money Upfront

One of the most significant benefits of car financing is that you don't need to come up with any money for a down payment. When buying, you typically need at least 20% of the price in cash to put towards a down payment. That can be a lot of money, especially if you're buying an expensive car. With financing, the lender will give you the total amount you need to purchase the vehicle, and you can start making monthly payments immediately. This can make getting into a new car much easier, especially if you don't have much money saved.

Build Equity

Another significant benefit of financing is that it allows you to build equity in your car. With leasing, you rent the vehicle and then turn it back in at the end. With financing, you're buying the car, and over time you'll build up equity that you can use if you ever need to sell or trade in your vehicle. This can be a significant benefit if you keep your car for a long time.

Flexible Payment Plan

You can choose your payment plan. You can pay off your car in two, three, four years, or even longer. You get flexibility in how you make your payments. However, lower monthly payments may mean that you pay more interest over the life of the loan. If you choose to pay off as soon as possible, you'll save on the interest you'll pay.

Establish Your Credit Score

Paying off a car loan can help you establish or improve your credit score. A good credit score can make it easier to get approved for loans in the future and may assist you in acquiring a lower interest rate. If you have bad credit, paying off a car loan can be a great way to start rebuilding your credit history. If you need a credit report, AnnualCreditReport.com is the federally authorized website to provide you with a free report. Three major credit bureaus are Equifax, Experian, and TransUnion. You can get a free report from each of them once every 12 months.

Cons of Car Financing

Interest Rates Can Be High

Car loans usually have higher interest rates than other types, like mortgages or personal loans. That’s because cars are considered a risky investment by lenders.

Depreciation in Car's Value

It depreciates as soon as you drive a new car off the lot. A new car can lose up to 20% of its value in the first year. It means if you finance a $20,000 car, it could be worth only $16,000 by the end of the year.

Benefits of Leasing a Car

Smaller Monthly Payments

Leasing a car is a preferred alternative for many drivers, and it’s not hard to see why. When you lease, you make smaller monthly payments than if you were to finance the same vehicle. You pay the vehicle's depreciation during your lease term rather than the entire purchase price.

Upgrade More Often

Most leases are for two or three years, after which you can turn in your vehicle and lease a new one. This is perfect for drivers who like the latest car and those who frequently need to update their vehicles for work purposes.

Not Much Cash Required for Leasing

Most leases only require the first month’s rent and security deposit. This can make it easier to get into a lease than it is to purchase a vehicle outright.

Cons of Leasing a Car

Restrictions on Mileage

When you lease a vehicle, you’re typically restricted to driving it between 12,000 and 15,000 miles per year. You pay a fee for every excess mile driven if you drive more than that. This can be expensive, so ensure that the mileage restriction works for your lifestyle.

No Modifications Allowed

You can’t modify the car while it’s leased to you. It means no new paint jobs, decals, or aftermarket parts. Some leases may allow for minor modifications, but checking with your dealer beforehand is best to avoid penalties.

Conclusion

Whether you lease or finance a car, it’s important to do your research and understand each option. Consider your budget, driving habits, and needs when making your decision. Ensure you’re comfortable with the terms whichever route you choose before signing a deal.

Supreme Chevrolet West, serving Monticello, LA, is the ideal dealership for anyone looking to finance a car. We will make the process as smooth and stress-free as possible. We understand that each customer's situation is different, and we'll work with you to find the best financing option for your individual needs. Whether you're looking for a low monthly payment or a shorter loan term, we will help you get the best deal possible.