Buying a new car is always exciting, you’ve probably been dreaming of this moment for months if not years. However, most people who are planning to buy a car quickly face an important decision: is it better to buy a car outright, to lease it or to finance it? If you have the money to buy the car outright, then by all means, go for it. But most people don’t have this luxury, so they need to find other means of paying for a car. Traditionally, most people chose to finance their new vehicle as opposed to leasing it, but not the choice may not be so clear.
The pros and cons of leasing a car
The main advantage of leasing a car is that your monthly payments for the vehicle will be significantly lower than if you were to finance the vehicle and slowly pay off a portion of the debt every month. This is a great choice for those who love to drive new and expensive cars but don’t have the means to actually buy these cars or don’t want to get stuck with the same car for many years.
The con of leasing a car is that you have to pay for it every month but you will never actually own the vehicle, as you’re not building equity for it with your payments, you’re simply paying for the privilege of using the car. Once your lease is up, you simply return the car to the dealership, so leasing a car is similar to renting a car long-term. Another downside of leasing a car is that it can be incredibly expensive to terminate a lease early.
Pros and cons of buying a car through financing
A car financing agreement is very similar to a mortgage. You first need to get approved for a loan, submit a down payment for the vehicle and pay the rest with the loan you got from a bank. You can also trade-in your old car and use that money to pay part of the sum for the new car. The upside is that once you pay off the loan, you fully own the car and you can use it for as long as you want or sell it. Unlike when leasing a car, when you’re buying a car through financing, you don’t have any mileage caps, rules for how you’re allowed to customize the car, etc.
The downside to buying a car is that the downpayment is much higher than any payments you will need to make when leasing a car, and monthly loan payments are also higher than payments on the lease. You will also have to pay interest on your vehicle and you will need to be careful not to default on your payments, or you can lose your car.