Financing Tips for Leasing or Buying Automobiles

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Coleridge quote
When you’re looking for a new vehicle, you have two basic options – lease or buy.

You can either strike up a lease agreement with a dealer or purchase your vehicle with cash or through financing.

Leasing provides short-term benefits without ownership, while buying a vehicle is a more serious commitment with greater long-term value.

To get the most out of either form of financing, you should familiarize yourself with the benefits and drawbacks of each option. Both have benefits under the right conditions, such that leasing a car might be best at one point in your life while buying is better for you at some other point.

Keep these considerations in mind when deciding whether to buy or lease your next vehicle:

1. Leasing is like renting your car

When you lease a vehicle, you make monthly payments to use, but you never really own it. When the lease term ends, you either renew your lease of give the vehicle back to the dealer. You never reach a point where you’ve actually paid off or own the vehicle.

  • Even though you don’t own a leased vehicle, in most cases you’re still responsible for all necessary maintenance during the lease term. Whether that’s new tires, fluids, oil changes, or other general maintenance costs, these are your responsibility.
  • Also, since you don’t own the vehicle, you can’t make modifications to it. This means no aftermarket parts, bumper stickers, window tinting, or any other alterations you might otherwise be free to make on a car you drive regularly.
  • Leasing best suits individuals who want to drive a new vehicle every few years. Typically, when a lease agreement ends, they’ll initiate a new lease agreement on a new vehicle.

2. Negotiating an auto loan means you own a vehicle

As long as you make payments on time, you keep the vehicle as yours. Once it’s completely paid off, you will no longer have to worry about making payments.

  • As the owner, you’re still responsible for repairs and routine maintenance costs. However, in this case you’re investing and maintaining your own vehicle, not the dealer’s. You won’t have to give it back when your payments are complete.
  • Best of all, you can use a loaned vehicle as collateral for secured options with various lending institutions. When you lease a vehicle, you can’t use it as collateral and there are a number of restrictions about how you can use the car, which limits your enjoyment of the vehicle.

3. Interest rates affect one option’s advantages over another

The key to choosing between leasing and owning a vehicle has to do with affordability. The affordability of one option over the other changes based on market conditions, current interest rates, and other incentives.

  • When interest rates on auto loans are low, lease payments may seem like a less attractive option. Combined with incentives from auto dealers, low interest rates often make an auto loan a much better opportunity.
  • When interest rates go up making auto loan approvals less feasible, leasing might be a better option, since it provides short term access to a car with lower monthly payments that aren’t based on an interest rate.

Which One’s Better?

It’s always a good idea to weigh your options before deciding whether to buy or lease a vehicle. Each option provides different advantages, disadvantages, and incentives over time.

Compare the leasing and buying opportunities in your area and match them to your current financial situation to determine which one works best for you.

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