Purchasing A New Car

Leasing vs. Financing

Purchasing a new car can be stressful. Besides deciding on what type of vehicle is best for your needs, you need to decide how to pay for that vehicle.

The first decision after you select a vehicle is to decide if you should lease or finance. In order to make that decision, you need to understand the differences between leasing and financing.

Leasing A New Car

When you lease a car, the car is purchased by the company from which you lease it. You are basically paying only for the use of your vehicle. Leasing pays for the vehicle’s depreciation over the term of the lease instead of the vehicle’s actual purchase price. When you lease, you are still required to maintain the car. When the lease ends, you can either purchase the car or turn it in. Leasing payments are typically lower than financing payments. There usually is a security deposit, bank fee and 1 or more lease payments required at signing. The length of the lease is generally 24-60 months. You can be penalized heavily for early termination of the lease. Annual mileage is limited, usually to 12-15,000 miles per year. Any excess will bear additional charges at the end of the contract. Further, if there is any damage to the vehicle other than normal wear and tear, you may be held financially responsible.

Purchasing A New Car

  • When you buy, you can keep the car once it is paid in full and sell it whenever you choose. If you are unhappy with a leased car there is little you can do until the end of the lease.
  • Financing usually requires a down payment. This can be paid in cash or by trading in your current vehicle.
  • Monthly payments are higher than lease payments.
  • Financing is usually 36-60 months.
  • Mileage is not limited.
  • You can make any modifications to your vehicle.

    • Financing Tips

  • Research Options and pre-qualify for a loan.
  • Don’t discuss financing until after the price and trade-in value have been established
  • Compare lenders to get the best rates.
  • Compare lenders to get the best rates.

    • Loans Can Be Offered Through a Variety of Places

    1. DEALERSHIP

    Although financing arranged through a dealership may be more costly, it can be very convenient. You can be approved at the same time you decide on the vehicle. Most times, the interest rates are comparable or may only be slightly higher than a bank’s rate.

    2. CREDIT UNIONS

    The interest rates here are generally lower. If you are already a member or want to become a member of a Credit Union, you should definitely consider the rates they have to offer.

    3. COMMERCIAL BANKS

    Their rates maybe somewhat lower than a dealership but are higher than credit unions.

    What You Should Consider Before Leasing

  • Do you feel the need to purchase a new car after two to three years?
  • Is driving a new car more important than owning one?
  • Do you maintain your vehicle?
  • Do you drive less than 15,000 miles a year?

    • Answers of “Yes” to the questions above suit you well to a lease.

    The Lease Check List:

    1. Shop Around
    2. Read the fine print
    3. Stipulate a closed end lease. This assures that if the residual value of the vehicle at the end of the lease is less than estimated, you will not be responsible for additional depreciation. On an open-end lease, you will be required to pay the difference.
    4. Obtain your own insurance. Take Gap Insurance to profit in the event of theft or total destruction.
    5. Negotiate

    Keep in mind if you feel you will be purchasing at the end of the lease, financing will be less costly in the long run.
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