Lease Vs. Finance A Car: Things To Consider As A Car Buyer

Key Takeaways:

• Car leasing is when you rent the vehicle for a specific number of years.
• Leasing a car generally requires a lower down payment than financing.
• Once the term ends, you will buy the vehicle or return it.
• Financing a car is when you take out a loan to pay for the vehicle.
• You will make monthly payments on the loan and any taxes and fees associated with purchasing.
• Car financing can help you build your credit score if you make payments on time and in full.

When purchasing a new or pre-owned car, you'll need to determine whether to lease or finance the vehicle. Both options have drawbacks and advantages, and deciding which is the best choice for you can be hectic. This post will examine leasing vs. car financing and help you make the right choice.

What is Car Leasing?

Leasing a car is when you pay the dealership to rent the vehicle for a specific number of years. You will pay any taxes and fees associated with the lease and any maintenance or repairs needed during the lease term. Once the lease term ends, you will have the option to buy the car or return the car to the dealership.

What is Car Financing?

Car financing means taking out a loan to pay for the car. The loan will have a set interest rate and term, typically three to five years or more. You will make monthly payments on the loan and associated taxes and fees. Once paid off, the car will be yours.

Can You Pay Cash and Buy a Car Outright?

This is often the best way to get a good deal on a car. Dealerships may give you a better price if you're paying cash because they don't have to worry about getting their money back through interest payments. There are also some drawbacks to buying a car with cash.

• For one, it ties up much of your money in one asset. This can be a problem if you need that money for other things, like an emergency fund or home repairs.

• You may not acquire as good of a warranty with a cash purchase. Some dealerships offer better warranties to customers who finance through them.

Benefits of Car Financing

Low or No Down Payment Required

Car financing doesn't require you to make a down payment. Some lenders offer 0% down auto loans, which means you can finance 100% of the vehicle cost. This can help if you don't have extra cash on hand for a down payment. Remember, however, that a lower down payment means you'll have a higher monthly car loan payment. If you have money for a down payment, consider using it. A larger down payment can reduce your monthly payments and help you pay off your car loan faster. It can also give you negotiating power with the dealer since you'll be able to pay cash for a more significant portion of the vehicle.

Become the Owner of the Car

Once you've made all your loan payments, the car is yours. You may sell or trade it for a new vehicle, but you're not required to do so. You can drive it as long as you'd like. Of course, if you decide to sell the car, you can keep any money you make from the sale.

Enjoy More Flexibility with a Loan

While leasing gives you the option to trade in your car for a new one after a few years, loans give you more freedom. You can keep it as long as you want and even make modifications without worrying about voiding the warranty. Budget for maintenance and repairs, as they will be your responsibility once the loan is paid off.

Build Your Credit Score

Car financing may be a good option if you seek to build your credit score. You can improve your credit rating by making your payments on time and in full. This will help if you plan to apply for a mortgage or another loan.

Drawbacks of Car Financing

Depreciation

Your car will depreciate when you drive it off. It can lose up to 20% of its value in the first year alone. You'll want to factor in this when budgeting for your car payments.

Problem with Credit Score

If you miss a payment or default on loan, your credit score will hit. And, if you cannot make the payments, you could lose your car. So only finance a car you can afford and make your payments on time.

Benefits of Car Leasing

Affordable Monthly Payments

Car leasing can make having a car much more affordable. When leasing, you only pay for the portion of the vehicle's value you use during your lease term. Your monthly payments will be lower than if you had purchased the same vehicle.

Upgrade Every Few Years

It allows you to upgrade your vehicle every few years. You can always be driving one of the latest models without worrying about selling your old car or taking out a loan for a new one. Enjoy new features and technologies as they are released.

You Don't Need a Hefty Down Payment

You don't need to make a large down payment when you lease a car. Most leases require no money down at all. All you need is the first month's payment and applicable taxes and fees. This can make it much easier to get into a new car.

Drawbacks of Car Leasing

Be Wary of Mileage Limits

You may be subject to mileage limits. Most leases limit you to between 12,000 and 15,000 miles per year. If you exceed this limit, you'll be charged a fee for each additional mile. This can add up quickly, so ensure you can stay within the mileage limits.

Not Every Model is Available

You may not get the car you want. Leases are typically only available on newer cars. If you're looking for an older model, you'll likely need to buy it outright.

Conclusion

When car shopping, consider every option. Leasing and financing are significant, but they have their pros and cons. Weigh your needs and wants against each option to decide which is best for you. And, of course, don't forget to have fun! Car shopping should be an exciting experience.

Supreme Chevrolet of Gonzales, serving Carville, LA, is ideal for car financing because we offer various financing options to meet your needs. We also have knowledgeable representatives who will work with you to get the best financing deal possible. 

Get pre-approved for your next car!