Car leases are increasingly popular, but many drivers still prefer to take out car loans as a matter of habit. If the time has come to trade in your vehicle for a newer and more well-equipped vehicle, it is beneficial to carefully explore all financing options. Car loans may be the traditional option to pursue, but they are not financially beneficial in many situations. In fact, after you carefully explore all options available to you, you may realize that a lease is the best option for you. Pay close attention to these points as you make your decision.
Your Up-Front Costs
When you take out a car loan, you do not necessarily have to make a down payment on your purchase. However, you should. In some cases, you may even need to. A down payment will create lower monthly payments, and it may prevent you from falling into the red with your vehicle. In addition, if you were in the red with the last car that you traded in, you may be required to pay off that loan before you can buy your new car. There are usually up-front fees with a car lease as well. These leases may be approximately $1,500 to $2,000 in most cases.
Your Maintenance and Repair Expenses
After you take ownership of your car, you will be required to maintain and repair it over the years. If you lease your car, repair and maintenance work is covered by the dealership. You simply have to take time out of your day to get the work done as needed. If you finance your car, the repair work is covered by the warranty for a limited period of time. After the warranty expires, you will need to pay for the repairs. Maintenance expenses are usually always the responsible of the driver when you have a car loan. The overall repair and maintenance costs are substantially higher when you have a car loan in comparison to a car lease.
The Regular Payments
You also need to make regular payments for both leases and loans. A lease typically covers a three-year term, but you may be able to negotiate this. A loan may have a two to six-year term or longer. The longer your loan term is, the more affordable your payment may be. However, with a three or four-year term, your payments may be substantially higher than with a car lease. If you choose a longer loan term, less principal will be paid down on the loan each month. Therefore, there is a strong chance that you will fall into the red with your loan. If you are in the red, you may have to drive the vehicle for a longer period of time than you truly want to.
Surrender or Trade-In Costs
The costs of ownership and leasing may continue when you are ready to get a new vehicle several years from now. Because a car lease is usually on a few years long, you will always have the benefit of driving a newer car. You will, however, have to pay a surrender fee when you take your leased car back to the dealership. This surrender fee as well as any mileage expenses are stated in the lease agreement. Therefore, you will have several years to save for this expense. If you financed your car, you may still owe money on your car loan when you are ready to get a new car. This loan balance will need to be paid off. Most people are not sure how much money the dealer will offer on the trade-in until they are ready to move forward with their trade-in plans. This means that you may not know if you are upside down on your loan or not, and it gives you no time to plan for this possibility.
With both leases and loans available to consider, you can easily compare all pros and cons for yourself. By focusing your attention on these factors, you can make the best decision possible.