Key Takeaways:
1. Leasing a car is like renting an apartment—you make monthly payments for the length of your lease term, and at the end of the term, you return the car to the dealership.
2. Financing a car is like buying a house—you make monthly payments until you've paid off the entire loan, at which point you own the vehicle outright.
3. There are pros and cons to leasing and financing a car, so it's essential to research & figure out which alternative is suitable for you.
4. If you're considering leasing a car, calculate all the costs, including the down payment, monthly payments, and any fees or charges.
5. Consider your personal preferences before deciding—leasing may be the better option if you like to drive a new car every few years.
How much do you love your car? Whether it's a brand-new luxury sedan or an old beater that's seen better days, we all have our favorite set of wheels. Buying a car is a significant decision; you have to decide what type of car you want and how to pay for it.
You can lease or finance your new car without breaking the bank. So, what's the difference between leasing and financing? And which option is right for you? Keep reading this blog by Johnson Volvo to find out.
Car Financing: An Overview
Let's start with the basics: car financing is when you take out a loan to pay for your vehicle. You'll make monthly payments on your loan until it's paid off, at which point the car will be yours free and clear. Many people opt for car financing because it allows them to build their vehicle equity. Plus, once you've paid off your loan, you won't have to worry about making any more payments (aside from routine maintenance and repairs, of course).
Car Financing: Considerations
So, what do you need to keep in mind if you're considering car financing?
1. You'll need a decent credit score to qualify for a loan with favorable terms. If your credit isn't great, you may still be able to get a loan, but you will probably have to pay a higher interest rate.
2. You'll need to make a down payment on your loan. The amount of your down payment will affect the number of your monthly payments and the length of your loan.
3. You'll be responsible for all repairs & maintenance on the car once it's yours. This can add up quickly, so it's important to factor that into your budget when deciding whether or not to finance a car.
4. Once you've paid off your loan, you won't have any more monthly payments. This can be a great relief, especially if you've been struggling to meet ends.
5. You'll own the car outright, so you can sell it or trade it in whenever you want.
Are There Any Drawbacks?
There are also some cons to financing a car:
1. You'll have a higher monthly payment than you would if you leased the same car. This is because you're paying off the entire purchase price of the car, plus interest and other fees.
2. It will take you much longer to pay off the car than it would if you leased it. This means you'll pay more money in the long run, even with a low-interest rate.
3. If you decide to sell the car before it's paid off, you'll still owe money on the loan. This can make it hard to sell or trade the car for a new one.
4. You may be required to purchase comprehensive & collision insurance, which can be costly.
Vehicle Leasing: An Overview
Leasing a vehicle is a convenient way to get a new car every few years without stressing about selling it or trading it in when you're done. It's also a good option if you don't have the money to buy a car outright. The global auto leasing market is projected to boost from $82.01 billion in 2022 to $131.10 billion in 2029, having a CAGR of 6.9% in the forecast period 2022-2029. Car leasing works like a charm for many people, but it's not for everyone.
Car leasing is a long-term rental agreement. You agree to pay a set amount of money each month to drive a car for a certain number of miles over a set period, typically two or three years. At the end of the lease, you can return the car to the dealership and start anew with a new lease on a different vehicle.
Advantages of Car Leasing
There are several advantages to leasing a car instead of buying one:
1. You can drive a newer ride more often since leases typically last just two or three years.
2. Monthly payments are usually lower than loan payments for an equivalent car since you only pay for a portion of the vehicle's depreciation over the lease term.
3. You don't have to worry about what to do with the car at the end of the lease since you can turn it in and start anew.
4. The warranty typically covers maintenance and repair costs, so you don't have to worry about unexpected expenses.
5. You might get entitled to tax deductions if you use the car for business purposes.
Disadvantages of Car Leasing
Of course, there're also some drawbacks to leasing a car:
1. You never own the car, so you're always making payments without building any equity.
2. You're usually restricted to a certain number of miles per year (e.g., 12,000), and if you go beyond that limit, you'll need to pay per mile.
3. You may have to pay extra at the end of the lease if there's excessive wear and tear on the car.
4. You may not be allowed to customize or modify the car since it will eventually belong to someone else.
How Do I Know What's Best for Me?
Leasing vs. financing is a personal decision, and the best way to figure out which option is right for you is to talk to your car dealer or financial advisor. But there are some questions you can ask yourself to help make the decision:
1. How Long Do I Plan on Keeping the Car?
If you're planning on driving the same car for several years, leasing may not be the best option since you'll never own the vehicle.
2. Should I Get a New Car Every Few Years or Stick with The Same One for A While?
If you tend to get bored with your car quickly or like having the latest model, leasing might be a good option.
3. Do I Have a High Annual Mileage?
If you drive a lot, you may rack up more miles than your lease allows, which could result in extra charges at the end of your lease term.
4. Can I Afford the Monthly Payments?
Calculate all leasing costs, including the down payment, monthly payments, and any fees or charges.
5. Am I Comfortable With The Idea of Not Owning the Car?
Some people like the idea of always having a new car; others prefer the feeling of ownership. There's no right & wrong answer, but it's something to consider before you sign on the dotted line.
Interested in CPO Cars? Here is our blog on Are Certified Pre-Owned Cars Better Than Regular Used Cars?
Still Unsure? Here's How Johnson Volvo Can Help!
Johnson Volvo serving Wake Forest, NC, is here to help you make the best decision for your needs and budget. Apart from having a massive inventory of new and pre-owned cars, we also have a team of experts in our finance department who can walk you through the leasing vs. financing process & help you choose the finest option for your individual needs.
Contact us today to learn more or to schedule a test drive!
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