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BUYING VS. LEASING: MAKING THE RIGHT FINANCING DECISION

ON YOUR NEW CAR

Buying a car is a major financial commitment and the biggest purchase most people make, other than buying a house. There are many things to consider and everything from your lifestyle to budget should be factored in carefully. The situation is further complicated for people when they try to figure out whether they should buy or lease. While leasing may seem confusing or like an option geared only for those who can deduct the expense, many individuals may find this to be the more viable financing option. Here is the rundown on financing a new car and the differences of buying and leasing.

INTRO

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The most obvious and greatest benefit of outright buying a car is, of course, that the vehicle will one day be yours. Eventually you’ll no longer need to make car payments and you won’t be locked into a fixed ownership term; in other words, you can sell the car whenever you want. Another benefit is that the insurance policy will usually be lower on a car you buy than one you lease. Finally, because the car is yours, there are no restrictions or penalties regarding mileage or usage.

There are also some drawbacks to purchasing a car, however. While paying for the car, your monthly payments are usually higher than on a lease and dealers often require a substantial sum for the down payment. The car you purchase may also depreciate quite a bit in the time that it takes you to purchase it and, if you take too long paying it off, the car may even end up being worth less than the amount that is still owed on it. Most vehicles will lose 20-40 percent of their value in the first few years after purchase.

Pros & Cons of Buying

Buying vs. Leasing a CarThere are different benefits and drawbacks for both leasing and buying a vehicle and which option is better

really depends on the preferences and needs of the individual buyer.

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Pros & Cons of LeasingLeasing a car has the great financial benefit of not requiring a large amount of money straight off the bat. There are less out-of-pocket expenses not just with the initial acquisition, you also avoid maintenance costs to a high degree and sales tax altogether. During the lease period, the car payments will usually be lower than if you are purchasing the vehicle because you only pay for the depreciation that takes place during that lease period, which usually lasts 3-4 years.

Leasing may also be your only chance at driving a more expensive vehicle as banks normally place a cap on car loans at $30,000. Finally, leasing a car may have some tax advantages, particularly for business owners who can often write-off the expense.

A leased car, of course, isn’t yours and you cannot sell it unless you choose to purchase it after the terms of the lease are up. The lease contract will also likely have a number of restrictions regarding things like mileage and breaking them will incur penalties. Furthermore, your insurance policy for the car will most likely also be higher.

Financing and Working with an Auto Dealer

When looking for financing options for either the buying or leasing option, it’s important to take time to shop around for the best deal. Looking at a number of banks, seeing the loan sum you qualify for, and what the interest rates are is a good idea before even stepping into a dealership. The two main financing options people look at when purchasing or leasing a vehicle are direct lending and dealership financing.

Direct LendingDirect lending means getting a car loan straight from a bank or credit union. You’ll come to an agreement with the bank about the amount and what period of time you’ll pay the sum, plus a financing charge, back to the institution. The benefits of direct lending are predominantly in being able to shop around for different credit terms and having a lot more options in terms of interest rates. Some institutions will even offer you an amount before choosing a vehicle, meaning you know exactly how much your budget will be.

Dealership LendingWhen financing the vehicle through the dealership, you’ll be working with the dealer financial department on the terms. It works similarly to direct financing, but can be more convenient as the dealer is a one-stop-shop if you are getting both the car and financing in the same place and dealers often times have extended hours. It is, however, important to work with an auto dealer financial department that you trust, especially since they are far more likely to offer you deals or special incentive programs when coming up with the terms of your contract.

Adress: 8170 US Highway 64, TN 38133Phone: (901) 373-3030

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