Shopping for a car can mean an overwhelming amount of decisions you have to make, from used or brand new, 2-door or 4-door, or even manual or automatic transmissions. Another equally important decision to make is whether to lease the car or buy it. Both financial options have their individual merit, but also have pitfalls you should be aware of.
Monthly Cash Flow
Cash flow is basically money coming in and out of your pocket or savings account each month. Leasing a car usually carries lower monthly payments than financing a car with comparable repayment conditions, since leasing involves paying for the depreciation of the car during that period of time rather than the entire car cost. People who need access to more money per month can benefit more from leasing.
Leasing – Pros and Cons
Leasing a car may allow you to get more car value for less money. When you lease, only a small percentage of the car’s total value is used as basis for your monthly repayment conditions. On the other hand, a car loan will account for the full price of the car, so you end up paying more over time.
Leasing also works well for car buyers who have less savings to put up as down payment. Most car leases require anywhere from zero down payment, to only a few thousand dollars. If you still find the required down payment too steep, you can negotiate it with the car dealer.
Last but not least, many car leases have a lifetimes of around three years, which is usually the length of new car protection plans. This means that your leased car is most likely covered by a warranty for repairs as long as the leasing contract is still open.
A notable pitfall of leasing a car is its mileage restrictions, which is usually around 9,000 to 15,000 miles per year. If you drive frequently or drive long distances, this restriction could conflict with your lifestyle needs.
Buying – Pros and Cons
If you plan on using the car for more than 5 years, buying is probably the better option. When you buy a car, you have full ownership immediately after the loan is paid off, but until then, the lender owns the car. Every time you make repayments for the loan, you are owning more and more equity in the car.
One of the main attractive features of buying a car is that it doesn’t restrict your driving. You can drive more than 15,000 miles per year without violating your contract.
A pitfall, however, is that loan requirements are more strict. Down payments are usually bigger, anywhere between 10 to 20 percent of the car’s full price. On a $50,000 car, you’d have to shell out at least $5,000 to be able to drive it off the dealership.
Know which option works best for your circumstances before any other decisions are made. Once you are confident you’ll be able to finance the purchase with ease, then decide for other things like which dealership or Expressway Dodge sales center to approach, or what model you want to get.