Is It Better To Lease Or Buy A Car?

    0
    4


    While the choice between leasing or buying a car has many financial implications, money isn’t the only factor that goes into that decision. In fact, this choice is often based on a person’s tolerance for risk and how often they want to change cars.

    If you want to own a car right away – and enjoy some time without a dreaded car payment – buying a car is the obvious choice. When you don’t mind owning a car, car leasing is more common than some drivers realize.

    According to Experian’s State of the Auto Finance Market study in the fourth quarter of 2020, 26.45% of all new vehicles were leased in the past year, with Hondas and Toyotas being the most popular automakers. Leasing a car can also mean a cheaper monthly payment, depending on the scenario.

    Before making a decision to buy or lease a car, think about your finances and your lifestyle. This guide can help you decide what to consider before buying or leasing a car, along with the pros and cons of both options.

    How does the car purchase work?

    You can buy a car outright if you have the cash, but most consumers use car loan financing to make their purchase easier. In fact, the same Experian report found that last year 81.12% of new cars were bought with a car loan and 34.59% of used cars were bought with finance.

    Car finance today

    The prevalence of funding has to do with the high cost of cars and trucks, and especially new vehicles. Experian announced that consumers paid an average of $ 35,228 when buying a new car in 2020, compared to $ 33,255 in 2019, bringing the average new car payment to $ 576 in the fourth quarter of last year – a new record .

    The fact that consumers are borrowing higher also leads to new auto loans with significantly longer terms. In fact, 42.13% of new car loans in the fourth quarter of 2020 were between 61 and 72 months, and 30.21% opted for loans between 73 and 84 months. A very small percentage (1.41%) even opted for longer car loan terms.

    Whichever payment method you choose, there are several ways to buy a car. You can buy your new vehicle from a dealership, but you can also opt for a private sale or an auction purchase. If you don’t have the cash to pay for your car directly, you can see if you qualify for in-house dealer finance or are looking for a third-party car loan.

    You can use marketplaces to compare car loans for new and used cars. Some of the marketplaces we recommend are, for example, Auto Approve, AUTOPAY, myAutoloan or RateGenius. These websites can help you find the lowest car loan rate that you will qualify for.

    How to Find the Best Car Buying Deals

    With technology, it’s easier than ever to find the best deal to buy a car. Keep these tips in mind when looking for a new or used car:

    • Decide on the type of vehicle that suits your lifestyle. Take into account the type of vehicle you want the most. If you have a family in tow, consider a minivan or SUV for that extra space. If you’re looking to save fuel, consider a smaller, fuel-efficient car, or even an electric model. According to Experian, more than 55% of new vehicles purchased in the final quarter of 2020 were SUVs.
    • Determine how much car you can afford. Make sure the cars you are considering come with a monthly payment that fits your budget. A car loan calculator can help you figure out the monthly rate for cars in your price range.
    • Use Autotrader to find new and used cars in your area. Once you’ve decided on the type of vehicle you want to buy, use Autotrader to search for options. This website allows you to compare prices, features and upgrades of new and used cars.
    • Find out prices for new or used cars with the Kelley Blue Book. If you are serious about a particular make and model of car, it helps to know its fair market value. The Kelley Blue Book allows you to enter a car model, its features and the average value you should expect from a dealer or private sale.
    • Find out about auto insurance requirements. See how much the car insurance costs for the vehicle. You can visit any national online insurer like Progressive for a quote.
    • Set up your own auto finance (if necessary). Finally, remember that you don’t have to use dealer finance to buy a car. You can get a quote for a car loan online and then go to the dealer to negotiate the best possible deal.

    How does leasing a car work?

    When you lease a car, you loan it for a fixed term. You don’t put any equity into the vehicle at all, but you are generally not responsible for repairs during your lease term as the car is most likely under warranty.

    Although leasing has its drawbacks, it is still a popular option for people who want to drive a new car most of the time. Leasing allows you to get into a new car, drive it for a few years, then switch to a new lease and start the process over. You don’t have to worry about selling a car so you can switch to a newer one or worrying about having negative equity on your trade-in.

    According to Experian, the average rental period in the fourth quarter of 2020 was just over 36 months (36.46 months). Meanwhile, the average monthly lease payment was $ 460 per month.

    How to Find the Best Car Lease Deals

    If you’ve decided to lease a vehicle rather than buy it, start your search with major dealerships that sell new cars. Here are some tips that can help you find the best leasing deal.

    • Decide on the type of vehicle that you want to lease. Compare car options that might interest you in leasing. Do you want to lease a luxury car that you can’t necessarily afford? Do you need a reliable car to get to work?
    • Search for leasing offers online. Once you know what type of car to lease, check the websites of the local dealerships in your area. Most of them have leasing offers prominently displayed on their websites so that you can easily search and compare.
    • Look for the lowest possible monthly payment. Since leasing means you never own the vehicle, your main goal should be to find the lowest monthly payment you can. Also, make sure that the lease period is ideal for your needs, whether you plan to lease for a year, 24 months, or longer.
    • Consider the deposit. Review down payment requirements for leases, and be aware that luxury leases often require a down payment of several thousand dollars upfront. This down payment can lower the monthly rate of your lease, but you won’t really “get” anything in return.

    Advantages and disadvantages of buying a car versus leasing a car

    Buy a carLease a car
    advantagesBuild equity with every monthly paymentPotentially lower monthly payments compared to buying. Never be “underwater” on a car loan. Chance to drive a new car every few years. Less responsibility for repairs. May be approved for a lease with poor creditworthiness
    disadvantageNew cars quickly lose monthly payments compared to leasing rates The interest rates can be high depending on creditworthiness Responsible for all maintenance and repairs (beyond the warranty period)Do not build up equity in the vehicle Mileage limits determine how much you can drive Additional responsibility for vehicle damage Leasing contracts are not always easy to resolve when necessary

    Advantages and disadvantages of buying a car

    Buying a car can be a better option if you plan to keep a car for several years. That’s because as you drive, you can build up equity in a vehicle over several years that you can later use for trade-in value.

    In fact, if you keep your car long enough, you might be able to own it in full and pay without a car payment for as long as possible. Owning a car also means that you can drive your car as many miles as you want and equip it with the latest accessories.

    Remember that by owning a car you are responsible for maintenance and repairs at least after the warranty period has expired.

    Who should buy a car?

    • Consumers with excellent credit standing who can get the best auto loan rates
    • People who plan to drive a vehicle for at least three to four years
    • Drivers who want complete control of their vehicle, including mileage
    • People who want to build equity with every monthly payment

    Advantages and disadvantages of leasing a car

    Leasing a car may be a better choice if you enjoy driving a new car on a regular basis. It could be an option for those looking to avoid having negative equity in a car or avoid the hassle of selling an older vehicle.

    Since leasing typically requires a lower monthly payment, you may be able to afford to lease a car with more features or upgrades than if you bought a new car. Remember, leasing means you never actually own the car and you always have a car payment.

    Leasing also brings mileage limits, which can be cumbersome depending on your driving style, and you cannot equip your car permanently.

    Who should lease a car?

    • People who like to drive a new car every few years
    • Drivers who want the lowest monthly payment for the best car they can afford
    • People who don’t care about building equity in a car
    • Anyone who wants a car that is always covered by the warranty

    Questions to ask yourself when deciding between buying or leasing a car

    If your primary goal is to save money in the long run, then buy a car and drive it in the ground! Conversely, you can also drive a new or used car until the repair costs signal that it is time to upgrade.

    If you prefer to always drive a new car, leasing is a better choice. This is especially true if you don’t care about having an auto payment indefinitely.

    Before buying or leasing a car, ask yourself the following questions:

    • How long do I want to keep my next vehicle?
    • Do I want a lower monthly payment or a chance to build up equity?
    • What is my budget
    • How much do I drive and can I live with mileage limits with a lease?
    • What is my credit rating? What is the Best Auto Loan Rate I Can Get?
    • How does buying or leasing affect my car insurance rates?

    When it comes to buying or leasing a car, there is no “right” or “wrong” for everyone. Consider the pros and cons of both options and do what is best for your lifestyle and finances. Ultimately, your goal should be to provide reliable transportation at an affordable price.

    LEAVE A REPLY

    Please enter your comment!
    Please enter your name here