We all know that when we walk into a car dealership, we have the option to purchase a car or to lease one. But what's the difference? What should you do? Leasing will save you money on your monthly payments. Purchasing will turn your car payments into an investment. Both the options to lease and purchase have their advantages and disadvantages, but what will work best for you? We're here to help give you a brief explanation, that way you can make a better-informed decision during your next car dealership experience.
Leasing:
When you lease a vehicle, you're essentially renting the car. You make your monthly payments, and you are able to continue driving your ride. Lease payments are lower than the payments on a vehicle purchase, since you are not moving toward owning the vehicle outright. A typical term for a lease is 36 months.
At the end of the lease term, you have a few options:
- You can turn the car in, and find a new vehicle.
- You can sell the car, and perhaps make some money.
- You can turn the lease into a purchase, and begin making monthly payments.
One should be careful about the amount of driving they do with a leased vehicle. Leases come with a mileage agreement. While the standard amount of annual miles allowed for a lease is 12,000, you are able to take a higher mile allowance for an increased monthly payment. Be careful, because if you have more miles on the odometer than the agreed upon amount, you will be charged by the mile--usually a steep price that you'll want to avoid.
The most common route consumers who lease their vehicle takes is to turn the car in and find a new vehicle. In some circumstances, you'll find that the value of the vehicle is higher than the residual value given at the time of the lease agreement. Residual value is the amount a car is projected to be worth at the end of the leasing term. When the actual value of the car is higher than the residual, you can sell the vehicle for the higher price and make the difference between the selling price and the residual. For example: if you have a residual value of $16,750, but are able to sell the car for $18,500, you just made yourself $1,750. Cars that have an easy time holding their values are promising for drivers looking to make this extra cash. And if you really like the vehicle and would like to continue to drive it, you can begin to make monthly payments toward the residual value.
Leasing a vehicle can be a great option for people who are looking to save some money and like to switch vehicles often. Every three years, you can park a new, shiny vehicle in your driveway. But keep in mind, the payments you are making aren't working toward paying off a vehicle you will own. If this seems like a fitting option for you, come visit us and we'll help you get started!
Purchasing:
There are a couple of ways to purchase a vehicle. You can pay cash, up front, and have no monthly payments. This is the cheapest way to buy a car, if you have the money to lay out. You will avoid any interest fees, and become an instant owner. If you don't have the money to lay out, you can finance a new vehicle. When you finance, you will make monthly payments until the balance of the car is paid in full. The average loan for a car is 60 months, although 72 months is becoming more popular. The less months you finance a vehicle, the lower the payment... and vice versa. Your finance rate will be dependent upon your credit score.
Those looking to get into a vehicle they intend to keep for years on end will find that purchasing a car is a better route than leasing. If you like to switch vehicle often, it may be wise for you to think about leasing, so you can avoid the possibility of losing money on your investment. If this seems like a fitting option for you, again, you can come visit us and we'll help you get started!
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