If you aren’t armed with the right information and a solid game plan, walking into a car dealership could cost you thousands of more dollars than you had hoped. One of the most important considerations when obtaining a new or used vehicle is whether you want to lease or finance it. And the more you know, the less you’ll owe.
With that said, here are the differences between leasing and financing. Depending on individual factors, including your credit score, how much you drive and how long you hope to have the vehicle, either option could benefit you.
What You Need to Know About Leasing a Vehicle
When you lease a vehicle from a car dealership, you essentially purchase the rights to use it for a fixed period of time at an agreed upon monthly amount. Dealers commonly offer this option as an alternative to purchasing the vehicle. After your lease has expired, you must return the vehicle to the leasing company. Or you can purchase it.
- Monthly payments for leasing a vehicle are usually lower than for financing it.
- Loans for a car usually don’t require a down payment.
- You get to drive a brand new vehicle every few years.
- You can trade in a leased vehicle after the lease has expired if you don’t it.
- You only pay for a portion of the vehicle’s total cost and the future price of it is set.
Cons of Leasing a Vehicle
Leasing a vehicle is usually the best option for businesses that need cars, SUVs, etc. to operate. And remember, if you decide to break a lease, you will likely have to pay a hefty penalty for it.
- It’s tough to lease a vehicle with bad credit.
- You aren’t paying to own the vehicle – just to use it.
- Most leases limit the amount of miles you can travel annually, which can lead to add charges.
- You are responsible for any wear and tear.
- Leasing becomes more expensive if you lease one car after another.
What You Need to Know About Financing a Vehicle
Financing a vehicle, on the other hand, involves you purchasing it outright. As with a lease, you’ll be responsible for a monthly payment. Unlike a lease, though, you’ll likely need a down payment. How much will depend on your credit.
Pros of Financing a Vehicle
- You own the vehicle once you’ve made all the required payments.
- You can make modifications to the vehicle.
- Financing is more cost effective than leasing over the long term.
- You won’t accrue a mileage penalty for driving more than you initially estimate.
- You can sell the vehicle at any time.
Cons of Financing a Vehicle
Financing a vehicle is usually the best option for people who plan to keep their vehicle until its wheels fall off – well, not literally. But if you hope to drive your vehicle for its entire lifetime, then you’re better off financing it.
- You will likely need to make a higher down payment – 10 to 20 percent of the vehicle’s value.
- You will have higher monthly payments.
- The cost of maintaining the vehicle is solely your responsibility, which adds up the older it gets.
- The vehicle depreciates as soon as you drive it off the lot.
- You are responsible for the trade-in or resale of the vehicle.