If it’s time for a new car, two common options are financing and leasing. Learn why you should finance your car instead of leasing it.
Getting a new car
Before you get a new car, whether that’s financing or leasing it, you must figure out if it’s time to get one.
Related: What you need to know about loans
With time, cars are becoming more reliable and built to last longer. According to AARP, the average car should last 200,000 miles or more.
However, it’s possible to get a new car before hitting to 200,000 miles mark. The following are signs that it’s time for a new car:
- You don’t feel safe.
- It’s a money pit.
- Repairs cost more than the car is worth.
- You want the latest in-car technology.
- Your friends and family are embarrassed to be seen in your car.
If you can relate to the signs, then it may be time for a new car.
When it comes to getting a vehicle, you can pay the full amount, lease the car, or finance it with an auto loan.
Related: What is APR?
If you can pay for the full amount of the car, that’s excellent because it’ll keep you out of debt. If that’s not the case for you, financing or leasing are your options.
Is leasing a car a good idea?
The main benefit of leasing is the lower monthly payments. You’re essentially paying to drive the car, and not to own it.
A car lease is an agreement between you and a dealership to pay a certain amount for a time period and mileage.
To lease a car, you may need to make a small down payment. Then you’ll be able to get the car and start making payments.
After the lease term is over, you’ll have to return the car. You may also be able to do a lease buyout, where you can get an auto loan or pay the full amount to buy the leased car.
The mileage is something you need to think about before leasing. If you go over the mileage limit, you’ll have to pay a penalty and for each mile, which can be 10 to 15 cents per mile.
Now, the main issue with leasing is that you’ll have to do a new lease every few years. After several leases, you would’ve been able to pay for the cost of a new car.
For most people. leasing won’t make financial sense. However, it’s an option. If you’re willing to take on the costs and want a new car every few years, then go for it.
If you want a brand new car without having to pay the high monthly payment that comes with one, leasing will allow you to do so.
Why you should finance your car
In most cases, financing a car is better than leasing. When you finance a car, you get the following benefits:
- Car ownership.
- You can sell it anytime, even during the loan term.
- Payments go towards paying off the car.
- You can drive as many miles as you’d like.
- Free to customize your car.
- No extra charges.
When you finance a car, you can get a car that’s a few years older. Although you can finance a new car, consider the depreciation.
According to Kelley Blue Book, the first year is when the car depreciates the most. Cars lose about 20% of their value within the first year. After 5 years, the car would’ve lost about 60% of its value,
If it’s time to buy a new car, look for a car that’s between 2 to 5 years old. This will ensure you don’t lose the initial depreciation and you may get a better deal.
Look for one that’s a certified pre-owned car or has a clean record and is in good condition.
The most important thing to consider when buying a car is whether or not you can afford it. Bankrate has an auto loan calculator that’s handy for figuring out what your payments will look like.
Note: Financial institutions often have auto loan specials where they offer discounted rates. Check with yours to see if they have dates available, and if you can wait, do it to get the best deal.
Frequently asked questions
How do I get the best deal on a car?
Find the car you want and understand the financing before you get the car. When you have the information you need to make a sound decision, you can be firm with your negotiations. Also, don’t be afraid to walk away and shop around.
Is financing more expensive than leasing?
The monthly payments to finance a car may be higher. However, at the end of the loan, you’ll own the car. Long-term, leasing is more expensive and you won’t own the car.
What is the longest you can lease a car?
The longest lease can extend out to 36 months. However, if you want to go longer than 36 months, it’s better to finance a car.
When you lease a car, you’re making monthly payments to a car that you won’t own. It’s like renting a car for a couple of years. That’s why financing a car is a better option. Regardless of the route you choose, it’s important to understand all of the costs, and always negotiate for a better price.
Featured image courtesy of Unsplash.
About David Em
David Em is the founder of More Money More Choices, which he launched to help you take control of your finances and build your dream life. Before More Money More Choices, David worked in leadership positions in the finance industry.