You walk onto the car lot, you know exactly what car you want, and you’re ready to pull the trigger. But then you’re asked the difficult question; “Do you want to lease or finance your car?” There are benefits and drawbacks to both financing arrangements, so today we’re going to try to give you a little clarification so you’ll be prepared to answer with confidence. (If you are fortunate enough to be able to pay cash—congratulations—you won't have to deal with this choice.)
Taking Out An Auto Loan
Financing a car is simply taking the full price of the car you want to purchase and splitting it up into monthly payments via a loan. The most common ways to get a car loan is either through your bank or through the financing department of the dealership (if the dealership has one).
It's All Yours (At Least When You've Made All 60 Payments)
The main advantage to financing is that you own the automobile and can do whatever you’d like with it. Whether that be to change the rims, add some accessories, or repaint, it’s up to you. Financing also provides you the option to keep the car as long as you choose. You can also drive it as many miles as you want.
Some disadvantages to financing is that you’ll generally have a higher monthly payment compared to a lease. Make sure you pay attention to the interest rate you’ll be paying. Because the typical loan is between 48 and 72 months, your interest rate will have a considerable on the total price of your car. For example, if you get a 2% interest rate on a $20,000 car and get a 72 month loan, you’ll pay $1,241 in interest. Bump your interest rate to 5% and you’ll end up paying $3,191. As you can see, the interest rate is vital!
Another potential disadvantage with taking out a car loan, is that you will probably need to pay extra for a service warranty.
Leasing Pros
Leasing, on the other hand, is a great option for some individuals. Leasing is kind of like paying to use a vehicle that the dealership owns. Typically, you make a down payment on the vehicle, and then make monthly payments for the length of the lease. Leases are generally 24 to 48 months. Once the lease is up, you simply return the car to the dealership. Once you return the car, you’ll have a few options; you can pay the purchase price of that auto (with a loan or cash) and keep it, start a new lease on a different car, or finance another car.
Another thing to consider is the repair warranty. In some lease arrangements, the dealership pays for service and repair with no additional charge to you.
...and Cons
Leasing may enable you to get a new car much quicker and easier than taking out a loan, but there are some downsides. One is that you never own the car and many men and women don’t like the thought of that. Because you don’t own it, you’ll have some firm rules on what you can and can’t do to modify the car. Another limitation with leased autos is the miles restriction that sets a limit on how many miles you can drive the vehicle per year. If you exceed that limit, you’ll have to pay a penalty that varies by the dealer and how far you drive over the limit.
The finance/lease decision takes some thought. Fortunately, choosing an automotive repair center in Falconer is easy. Rely on I-86 Truck & Auto Repair to keep your car in ideal condition.