The following compares the pros and cons of buying and leasing, the economics of each, and why you might choose to finance one way or another.
You have two options for buying a car: paying cash or financing it with monthly payments. Either way, the car becomes yours.
If you choose to finance, the lender will expect certain obligations to be met, such as a down payment and timely monthly payments. If you don't fulfill these obligations, the lender has the right to take back the car.
Most people don't have enough cash to buy a car upfront, so they finance it through a dealership, bank, credit union, or private lender. This allows them to cover the cost of the car, plus interest, over a period of three to six years.
Lenders consider your income, credit score, and the car's price when determining the loan terms and interest rates. Once you negotiate and sign the necessary paperwork, the car is all yours to use as you wish.
When financing a car, the bank will ask for a down payment to protect themselves. To secure your car purchase, aim for a down payment of 10% to 20% of the vehicle's MSRP. This will also lower your monthly payment.
If you have another vehicle, you can trade it in and use the equity as part of your down payment. The amount you need for the down payment depends on the lender and your credit score.
New cars depreciate over time. In fact, within the first year of ownership, a vehicle will lose nearly 20% of its value, according to Trusted Choice Insurance. The amount a vehicle depreciates varies depending on its market value, make, model, and even the year it was manufactured.
Despite depreciation, buying a car is a great way to build equity, as long as your payments outpace the rate that its value decreases. You can use this equity to pay for your next vehicle when you're ready to get one.
Your vehicle will be worth whatever you can sell it for in the future and that depends on how well you maintain it. (Be smart and protect your investment with regular scheduled maintenance by a factory-authorized facility!)
Once you've paid off what you owe on your contract, that's it. Your vehicle is 100% yours. The lending institution will send you a lien release as proof that the vehicle is paid off and all yours.
You don't own the car when you lease. You're paying for the use of the vehicle, but the finance institution that you leased it through actually owns it. This is usually why you pay less per month in a lease than if you were to buy the car.
Leasing also protects drivers from unexpected drops in value from unexpected circumstances. For example, if the vehicle you lease depreciates due to a recall, this won't affect you the way it would if you purchased a vehicle.
Leases often don't require any type of a down payment. All you usually have to pay is the first month's payment, a security deposit, the acquisition fee, and other fees and taxes. But, as with a purchase, if you want to lower your monthly payments, you can always pay more upfront.
In most leases, you don't end up owning a vehicle. Therefore, you won't be responsible for selling it. That's the financial institution's job. However, you may have mileage limits-typically between 12,000 and 15,000 miles per year-and wear and tear guidelines that, if you exceed them, could cost you extra money when you turn your vehicle back in.
Most lease terms range between two and three years, which may be attractive to drivers who like to drive a new car every few years. Leasing could also allow you to drive more car for less money, especially if you can only afford to buy a car at a lower market value.
Most people return the vehicle at the end of the lease term, but some like to purchase it during their lease or at the end. Others like to trade it in before their lease is over. Just ask us about these different options before signing any paperwork and we'll make sure that you have your lease set up the way you want it.
The best cars to lease are those with the best book value after the term of the lease. Since they depreciate less, you pay less. Review the lease ratings to see which cars retain their value.
Shopping for a new car is so exciting, but deciding whether to buy or lease can be tough. If you're not sure, just reach out to a car dealership near you. They'll talk you through all your options and help you figure out what payment method works best for you.
Here at Bailey Ford of Plattsburgh, our finance center has tons of leasing and financing options available for both brand-new Fords and used cars. If you're ready to lease or buy your next vehicle, just get in touch with us online. We're here to help!