At first glance, the decision between leasing and financing your next car purchase with an auto loan may sound rather similar. After all, with both options, you will be responsible for a monthly payment. You may even prefer a car loan because it is the option you are more familiar with. However, with a closer look at a few factors, you will see that signing a car lease is an excellent option to consider for your pending vehicle plans.
When You Take Possession of the Car
When you lease a car, you will most likely be required to pay an up-front fee to start the lease. This fee is usually $1,000 to $2,000, but there are variations to this. This may seem like a lot of money to pay up-front on a car. However, remember that a down payment may be required on a purchase as well. Many people trade in a car that they are upside down on, and they need to pay this difference when they are buying a new car. In addition, if you do not make a sizable down payment when financing a car, there is a strong likelihood that you will be upside down on your new car as well. This can be a never-ending experience for some people who finance their cars.
During Your Time of Ownership
Car leases usually last for two to three years, but you may be able to adjust this slightly in both directions based on your needs. The lease payment is usually more affordable than a loan payment, but this is not always the case. You could choose to set up a loan with a very long term, and this will create very low monthly payments. However, because you are paying down the car loan debt over a long period of time on a depreciating asset, you likely will be upside down with this loan setup.
How You Maintain Your Car
There are also costs associated with maintenance and repairs to consider. With a car lease, your repairs and maintenance services will be paid for by the dealership where you leased the car. With car financing, you will pay for your own maintenance. Maintenance can keep major repair issues at bay and can keep value up, so do not neglect this important responsibility. Car maintenance includes brakes services, tire rotations, oil changes and more. After the short warranty is up on the car, repairs will also become your financial responsibility when financing the car. Keep in mind that most people finance their car longer than the warranty period to create more affordable loan payments. Therefore, there will likely be a period of time when you own a car that is not under warranty.
When You Surrender or Trade in the Car
Returning the car also has its costs. When you surrender the car at the end of the lease term, there is usually a standard fee that you are required to pay. This fee is outlined in the original lease agreement, so you have plenty of time to prepare for this payment. You may also have to pay an additional fee if you drive more than the allocated number of miles on the car. If you are trading in a car that is financed, you may have to pay off the rest of the loan. Many people grow tired of their outdated vehicle before the end of the loan term, and they may also find that repairs are too costly to contend with.
While many drivers have traditionally purchased their vehicles for years, you can see that leasing provides you with a preferred alternative. You can easily see that leasing a car makes financial sense for most buyers. This is particularly true if you want better control over your budget or if you prefer to always drive a newer vehicle. Take time to analyze both options, and you will see for yourself why leasing may be right for you.