Key Takeaways:
- Financing and leasing are two of the most popular options when it comes to car ownership;
- With financing, you can enjoy the long-term right and the ability to sell or trade-in your car later;
- Leasing allows you the joy of driving a new car every year and can be more affordable than financing;
- Weigh your options between leasing and financing before deciding;
When purchasing a vehicle, you have a few different options. You can pay cash and buy the vehicle outright, get financing through a dealership or lender, or go with the prospect of leasing. Each option has its pros and cons that you should know about before making your decision.
If you’re wondering whether leasing or financing is better for you, there are some things to consider before your make the final purchase. However, let’s begin with understanding what they mean.
Financing A Car
When we use the term “financing” a car, we refer to the option that enables you to have ownership of a vehicle. Lenders like banks, car dealerships, and car manufacturers offer loans to help you purchase your new car. Let’s look at some advantages this method provides.
Advantages of Financing Your Car
Total Ownership
The idea of owning your car is an attractive proposition. After all, it is a vehicle you will likely use daily, so why not own it outright? When you finance your car, you will eventually own it free and clear. You can sell it, furnish it, or even put a custom paint job on it without violating the terms of your lease.
Possible Tax Deductions
Previously, financing a car allowed you to deduct the interest you paid on your loan as an itemized deduction. In some states, you may still be able to reduce the interest on your car loan if you use the vehicle for a specific purpose, such as business.
Builds Credit
You can improve your credit score by buying a car loan and maintaining your payments. By establishing a good payment history, you can qualify for better financing terms in the future.
No Restrictions
Now that you are technically purchasing your car through cash or loan, you will not have to deal with any restrictions when you lease a vehicle. There’s no limit on the mileage, and you are free to modify your vehicle however you want. The advantage of selling the car whenever you want is another added perk.
Disadvantages of Financing Your Car
Higher Overall Cost
Financing a vehicle costs more than leasing the same car. Financing charges can add 20% to the total cost of your automobile.
Unfair Trade-ins
When it is time to get a new car, you may be offered an unfair trade-in value (unless you negotiate well) because you are now an “upside down” car buyer. You still owe money on the loan, but the car may be worth less than what you owe.
Risk of Negative Equity
If your car depreciates faster than the terms of your loan, you could be “underwater” or “upside down.” These two terms imply that you owe more on the car than it is worth. Some vehicles depreciate quickly, and if you have to sell the car or get into an accident, you could be stuck paying for it for longer than you can afford.
Tied to the Vehicle
The flexibility of changing vehicles is taken away, and you find yourself driving a car you might not even like after a few years. And for reasons we have already discussed, selling the car before the end of the loan is not a smart choice.
Leasing A Car:
Due to its various pros, car leasing is becoming more popular among car owners. The method is simple and straight: you make monthly payments to a car dealership for the use of their vehicle over a said period (typically 2 to 3 years). When the contract expires, you can return the car, lease another one from the same or different dealership, or even buy the vehicle outright if you’ve fallen in love with it.
Advantages of Leasing Your Car
Extended Warranty and Hassle-Free Maintenance
The beauty of car leasing is that you can avoid many of the hassles and headaches associated with owning one. For starters, most leases come with an extended warranty that covers repairs and maintenance – meaning you’re not dealing with the troubles of unexpected bills down the line.
Lower Monthly Payments
Leasing a car tends to be a relatively cheaper option. When you lease, you’re only paying for the car’s depreciation during your lease period – rather than the total price.
No Resale Hassles
The perils of selling your car once you’re done with it are a burden off your shoulders. Once the lease is up, you can hand over the keys to your dealership and walk away.
Disadvantages of Leasing Your Car
Expensive in the Long Run
Although leasing may have lower monthly payments, it’s often more expensive in the long run. The lack of equity means you never build any value in your deal.
Restrictions on Mileage
Leasing companies often put mileage restrictions on leased vehicles. You are restricted to a certain number of miles per year (usually between 10,000 and 15,000). Going over the limit means paying a penalty fee.
No Ownership or Control
The joy of driving a new car wears off quickly when you realize that you don’t own it. You can’t make any modifications without the approval of the leasing company, either.
The Final Verdict:
Financing is more flexible than leasing, which is why we recommend it. If you’re going to use a vehicle for a short time, leasing it from the bank is the better option. Financing is a more sensible choice if you intend to keep the car for longer.
Finance Your Car in West Point, GA
At Mike Patton CDJR, serving West Point, GA, we have a wide range of financing options. We will help you resolve your credit issues to qualify for an auto loan.
By starting your vehicle financing application today, you can get pre-approved for financing and know precisely all your potential options.
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