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Purchasing
A New Car
Leasing
vs. Financing
Purchasing a new car can be stressful. Besides deciding on what type of
vehicle is best for your needs, you need to decide how to pay for that vehicle.
The first decision after you select a vehicle is to decide if you should
lease or finance. In order to make that decision, you need to understand
the differences between leasing and financing.
Leasing A New Car
When you lease a car, the car is purchased by the company from which you
lease it. You are basically paying only for the use of your vehicle. Leasing
pays for the vehicle’s depreciation over the term of the lease instead
of the vehicle’s actual purchase price. When you lease, you are still
required to maintain the car. When the lease ends, you can either purchase
the car or turn it in. Leasing payments are typically lower than financing
payments. There usually is a security deposit, bank fee and 1 or more lease
payments required at signing. The length of the lease is generally 24-60
months. You can be penalized heavily for early termination of the lease.
Annual mileage is limited, usually to 12-15,000 miles per year. Any excess
will bear additional charges at the end of the contract. Further, if there
is any damage to the vehicle other than normal wear and tear, you may be
held financially responsible.
Purchasing A New Car
- When you
buy, you can keep the car once it is paid in full and sell it whenever
you choose. If you are unhappy with a leased car there is little you
can do until the end of the lease.
- Financing
usually requires a down payment. This can be paid in cash or by trading
in your current vehicle.
- Monthly
payments are higher than lease payments.
- Financing
is usually 36-60 months.
- Mileage
is not limited.
- You can
make any modifications to your vehicle.
Financing
Tips
- Research
Options and pre-qualify for a loan.
- Don’t
discuss financing until after the price and trade-in value have been
established.
- Compare
lenders to get the best rates.
- Understand
financial terms and current local interest rates.
Loans
Can Be Offered Through a Variety of Places
1. DEALERSHIP
Although financing arranged through a dealership may be more costly, it
can be very convenient. You can be approved at the same time you decide
on the vehicle. Most times, the interest rates are comparable or may only
be slightly higher than a bank’s rate.
2. CREDIT UNIONS
The interest rates here are generally lower. If you are already a member
or want to become a member of a Credit Union, you should definitely consider
the rates they have to offer.
3. COMMERCIAL BANKS
Their rates maybe somewhat lower than a dealership but are higher than credit
unions.
What You Should Consider Before Leasing
- Do you
feel the need to purchase a new car after two to three years?
- Is driving
a new car more important than owning one?
- Do you
maintain your vehicle?
- Do you
drive less than 15,000 miles a year?
Answers
of “Yes” to the questions above suit you well to a lease.
The Lease Check List:
- Shop Around
- Read the
fine print
- Stipulate
a closed end lease. This assures that if the residual value of the vehicle
at the end of the lease is less than estimated, you will not be responsible
for additional depreciation. On an open-end lease, you will be required
to pay the difference.
- Obtain
your own insurance. Take Gap Insurance to profit in the event of theft
or total destruction.
- Negotiate
Keep
in mind if you feel you will be purchasing at the end of the lease, financing
will be less costly in the long run. |
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