Lease vs Finance

The car buying process may seem daunting and tiring, but it certainly does not have to be. Even if you aren’t sure about what exact vehicle you’d like to drive home or what any of those funny finance acronyms mean, it can help make purchasing a car a little easier if you are even just briefly aware of a few things. To begin, understanding the difference between leasing and financing can help guide you in the direction of what vehicle is right for you. It can also help you to feel more informed and comfortable when making a decision regarding your next vehicle.

What is LEASING?

Leasing can be defined as paying for a portion of the vehicle’s cost as you use it. Although it may sound like renting, it is actually very different. Leasing involves paying the depreciation cost, which is the difference between the sale cost and the estimated resale value of your car. For example, the car you are interested in might cost $30,000 and it is predicted to have a $20,000 resale value in 2 years, therefore you would be paying for that $10,000 difference. Along with the depreciation cost are other fees including, but not limited to, sales tax. Leasing can involve paying a first months payment upfront (if applicable), a possible security deposit and also a money factor, which is similar to an interest rate. A money factor is a rate determined at time of purchase (could be .001 or .004) which is also a cost you must pay monthly while using your car. Rates fluctuate, but whatever the rate is at the beginning of your lease is what you will pay throughout your lease, regardless of what the rate changes to.

What should I consider when leasing?

Keep in mind when considering a leasing option that you should know about how many miles you will be driving. Leasing charges cover a certain number of miles while you are driving the vehicle and you may need to pay extra $$ if you go over the number of miles that is stated in the lease. Also, understand how much you would like to spend per month on “using” your vehicle and ask yourself if you’d rather pay low monthly costs and no down payment rather than a higher cost up front. In addition, when your lease expires you have the option to either return the car OR purchase it for its depreciated resale value.

Financing a car is defined as paying for the entire cost of the vehicle in addition to finance charges and sales tax. Many would agree that buying a vehicle is more straightforward then leasing. When purchasing, there is absolutely no restriction on how many miles you can drive.

What should I consider when financing?

When making the decision to finance your vehicle, remember that you might need to make a down payment. You also will be paying interest rates along with any loans taken out to pay for your vehicle. That interest rate is determined by your loan company and based on your credit history.

So what should I do? Lease or Financing?

Leasing is a good option if you want low monthly payments, would like a new car with the latest features, including safety, every 2 to 3 years, want to be driving a new car that is always under warranty, understand that you will need to either return the car or pay the resale value at the end of your lease and know about how many miles you drive on a monthly basis.

Financing might be better for you if you would prefer to own your vehicle, understand that you may have higher monthly payments at first, want to customize a car further, want to be “payment free” down the road, feel confident you can maintain the cost of repair after the warranty expires, drive more than the average amount of miles per year and prefer to drive a car for a long time to spread out expenses and costs.

Of course we understand that you may have more questions regarding the leasing and buying processes. Our goal is to make sure you are completely informed about all options. We are here to make it more understandable and easy for you.

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