Making the decision to purchase a vehicle is a big deal. It doesn’t matter if this is your first car, or you’ve had many before. It also doesn’t matter if the car is old or new. This kind of decision is one that takes time and consideration to ensure you’re making the best choice, not just in the car you pick, but in the way you go about paying for it.
One of the biggest decisions you’ll have to make is whether it’s best to finance or lease a vehicle. Clearly everyone is different and has their own set of priorities, so with that said, here’s a look at the pros and cons of each option.
The Pros and Cons of Financing a Vehicle
Car finance means that you have obtained a loan from a credit union, finance company, bank, or the car dealership for the full amount of the car. It will be paid back over a specified amount of time and at the end of that time, you will own the vehicle.
With financing, you usually have some flexibility with the payment terms. You can choose how long you need to pay it back, as well as how often you make the payments (weekly, bi-weekly, or monthly). When you finance your vehicle, there are no limits on the mileage you can drive. Once it is paid off, you can always trade it in for its current value at that point, you can go ahead and make changes to the vehicle, and depending on your provider, the insurance rates may be lower than they are with a leased vehicle.
There are some cons to financing a vehicle, however. In many cases you will be required to have a down payment in cash, the monthly payments can be quite expensive, you’ll be responsible for maintenance, which usually increases the longer you have the car, and the car depreciates from the moment you drive it off the lot.
The Pros and Cons of Leasing a Vehicle
When you lease a vehicle, you are only borrowing a portion of the car’s value. What this means is that your payments will be much less each month since you aren’t borrowing as much. You will make these lease payments until the term ends, at that point you can turn the vehicle back into the dealer, or you can choose to purchase it by paying for the balance of the original cost of the vehicle.
Leasing tends to be a great option with those who are looking for affordable monthly payments, those who don’t want to keep the car for a long time, and those who don’t plan on driving a lot. With leased vehicles, there are limits on the “allowed mileage”. Should you go over the limit, you will need to pay a fee at the end of the lease term. There’s also the fact that you won’t be able to modify the vehicle during the lease and you aren’t building equity in it.
At the end of the day, neither is a bad option, it’s just a matter of what fits with your budget, lifestyle, and your driving habits.