Buying a new vehicle is a huge decision. It is important to do your research so that you know exactly what you are getting in to and what works best for your situation. If you are in the market for a new car then invariably you have come across the dilemma of whether to buy a car and finance it, or simply lease it. This article will discuss the pros and cons of both in order to provide you with the best tools to make the best decision for your situation.
Taking out a loan and making loan payments every month is the traditional way people have purchased cars in the past. If you plan on keeping your car for a long time and not upgrading anytime soon, then buying may be the perfect option for you!
Leasing is similar to financing via a loan with some very important differences. When purchasing a new vehicle outright, you are responsible for providing a down payment and financing the difference through a loan. When leasing, you are not financing the full price of the car, but merely the difference between the full price and its depreciated value after the term of the lease. For example, say your dream car costs $30,000. After the lease term (usually 3 years), its value has depreciated by, for example, 45% or $13,500. The vehicle’s value after three years is now only $16,500. This depreciated value is called its “Residual value.” With a lease you would essentially only be financing the difference in value for the three years you are using it. In our example this would be just $13,500, instead of the full cost of the vehicle ($30,000). This means that unless you provide a large down payment down, or have a very good trade-in, your monthly payment for a lease will be much more affordable than a loan payment for the same vehicle.
Benefits of leasing
As you can see, both options have their pros and cons that each buyer should consider before making a decision. Buying is certainly well and good, but if you are looking to get a new car with a minimal down payment, predictable monthly payments, and the ability to have the latest and greatest car every few years then you should consider a lease and what it can do for you.