Getting a new car can give you a great sense of pleasure, but this feeling can quickly fade away when you realize that you made a bad financing decision for your vehicle. Unfortunately, many drivers resent their car loans and even their vehicles as a result of this type of situation. For some drivers, a better buying option is to lease a car rather than to finance it. Before you finalize your buying plans, it is wise to compare both leasing and financing to determine which is right for your situation.
The Affordability of Your Payments
The most significant aspect of your financing decision relates to your monthly payments. You will be responsible for payments with both a lease or a loan. However, lease terms are usually substantially more affordable than loan terms. This is because the lease term only takes into account the years you are driving the car, and a loan term takes into account the full value of the car. Keep in mind that both leases and loans typically require an up-front fee as well.
A Word About Lease and Loan Terms
The lease and loan terms should be reviewed carefully with a focus on car value and depreciation. When you lease a car, the lease specifically states what your monthly payment will be as well as what your surrender fee is. The mileage on the car affects its value. If you drive more than the allocated number of miles, the lease clearly states how much you will pay per mile. When you purchase a car with a loan, however, there is a good chance that the value may depreciate faster than you pay down the loan. If this happens, you will be upside down on your loan. Furthermore, the more miles you drive, the faster your vehicle’s value will decline. If you get a longer lease term to lower your regular monthly loan payments, the greater your debt differential may be.
How Maintenance and Repairs Factor Into the Equation
Your vehicle repairs and maintenance can also affect your car’s value as well as your budget. Vehicles must receive regular maintenance to keep them in great shape and to minimize the extent of repair needs over time. Car leases usually come with complimentary maintenance service and repair work over the life of the lease. This means that most people who lease a vehicle do not have to come out of pocket with repair and maintenance costs. If you choose to finance your car, the vehicle will be under warranty for a few years. This means that repairs will mostly be covered. However, maintenance expenses will fall on your shoulders. These expenses include regular oil changes and tire rotations as well as periodic services on brakes, the transmission, the battery and more. If you choose a lengthy loan term to create lower monthly payments, keep in mind that you will likely still have a loan payment when your warranty is up. This means that you will be responsible for a payment, maintenance and repairs at the same time.
As you can see, there are substantial differences between leasing and financing a car. It is common for people who get a car loan to feel financially burdened by their loan at some point. The last thing you want is to regret your car purchase or to be tied to a car long after you want to trade it in because you still owe too much money on your car loan. You can avoid these things when you set up an affordable lease. If you are preparing to get a new car, it is wise to compare both lease and loan terms. Keep in mind depreciation, the impact of mileage and repair and maintenance expenses as well. When you focus on each of these points, you can more successfully get the car you want in an affordable way.