Spending Money – Way of the Rich

You’ve decided you need your own car, but cars are not cheap. In fact, affording a car is not possible for many people. A new car can out-price many budgets, even if we take long-term financing into account. However, there is an alternative that allows you to make less expensive monthly payments in exchange for getting to use a new car. Leasing a car instead of financing it allows you to drive a new car every few years while still paying lower monthly payments. Leasing is becoming increasingly popular. That is not to say that leasing is the best solution for everyone though. Whether you should buy or lease a car depends on many factors, other than your budget. Is it better to finance vs. lease a car? Like we said before, there is no easy answer to that question. Each option has its advantages and disadvantages. The right option for you will depend on factors such as how much you’re willing to spend on a car, what you expect from your car, and if you need to drive a lot. Buying a car is more expensive because you need to pay the full price. You could end up making loan payments for a long time. Once you finish paying off the loan, the car is yours and the payments end. Besides, if you ever decide to sell your car, the equity you have in it can be used as a down payment for your next car. When you lease a car, on the other hand, your monthly payments are lower, although you don’t have ownership of the car (unless you buy it after the lease is terminated). There are other limitations in a lease, such as mileage and keeping the car in perfect condition for the duration of the lease. Failure to comply with the terms stipulated in the lease agreement results in additional fees. You should also consider other factors besides the price: Are you someone who wants to always have the latest features in your car?Are you willing to spend more time taking care of the repairs needed by an older car?Do you want to avoid dealing with confusing agreements, terms, and conditions? Before going into a dealership, take the time to decide what you are comfortable with and what you expect out of your car. Each option has its benefits, and finding the choice that fits you best means finding which benefits are more important to you. Finance vs. lease a car pros and cons To help you have a clearer view, let’s get into the pros and cons of both financing and leasing a car. Pros of leasing a car Leasing can be thought of as renting a car for a pre-established period of time, and you don’t pay the full price for the car. Rather, you pay for the depreciation that is calculated to happen during the duration of the lease with interests and fees added in. Sometimes, you might even be required to make a down payment. While this might seem like a simple transaction, it is a rather complex transaction that is not easy to understand at first glance. You can always have the latest technology. One of the main reasons why cars are getting more and more expensive is the technology that is included in each new model. If you buy a top of the line model on a long-term loan because you value having the latest thing, it won’t be long before something newer and better comes along, and you are still stuck making loan payments. With a lease, you can afford a more expensive, higher-tech model because you will be making lower monthly payments. The monthly payments are typically lower. Since you are not paying the full purchase price, you will typically pay lower monthly payments with a lease than you would through financing. Of course, you need to look at the total cost of the vehicle to know whether you would be able to afford it, not just sign based on the size of the payments. Maintenance and warranty coverage could be included. Depending on the terms and duration of your lease, it is likely that you’ll be covered by the factory warranty for the duration of your agreement. Some leases do include maintenance in the monthly price for part or all of the term established in the agreement. You will see this reflected in the lease price, but you will have clearer and more stable costs. The car is an easier trade-in. Selling a used car is not always easy. By leasing, you don’t have to worry about trading-in or selling your old car. You just need to take care of returning the car at the end of the lease. There’s less sales tax. Although tax policies are different depending on the location, one of the main attractions of a lease is that, in most places, you can save a lot on sales tax. It is a good idea to consult a professional before leasing a car. Cons of leasing a car You are not the owner of the vehicle. This is just like renting a house versus owning it. Ownership of the car remains with the company. Because of this, the company can put some serious limitations on your use of the car, including any modifications to it. The payments never end. If you always lease a car, then you will always have to make monthly payments for that car. Furthermore, you will probably get a new lease agreement every two or three years. A new lease agreement means that your payments will not always be consistent. As vehicle prices rise, so will your lease payments. You have a mileage limit. Almost all lease cars have mileage limits. If you exceed this strict limit, you can end up paying a lot on extra fees. So, if you need to drive a lot or you don’t know how many miles you drive per month, leasing may not be for you. You can’t personalize your car. If you want to be able to customize your vehicle, then leasing is probably not for you. Generally, lease agreements stipulate that the vehicle must be returned in the same condition it was given to you. You need good credit. Usually, leases are targeted toward people with good credit. There are some leasing companies that have leases for people with bad credit, but that is not the norm. Pros of buying a car You own the car. Even if you are financing the purchase of your car, at the end of the day, you own that vehicle, and it is yours to do as you please. Even if the lender only transfers ownership to you once you finish paying it off, you are still able to do whatever you want with the car. There are no mileage restrictions. Once again, you own the vehicle. You can drive it as far as you want and go wherever you want. The only costs incurred from driving as much as you can are because of fuel and eventual maintenance. The payments are finite. Unlike a lease, once you pay off your car loan, you don’t have to make any more monthly payments. If you are looking forward to buying a new vehicle once you’ve finished paying off your loan, you can put the money you would’ve spent on the loan in a savings account. There are fewer headaches. Leasing is a complicated financial transaction. Getting a loan to buy a financed car is easier for most people. The credit requirements are not as high, and the process is more straight forward. There can be fewer maintenance costs. We’ve all been there. The car has some damage that does not require an immediate fix, and we put it off until we are more affluent. You can do this if you own the car but not if you lease it. Leased cars have to be returned in mint condition. Cons of buying a car The down payment is higher. Since you are going to be paying the full purchase price of the vehicle, it makes sense to make the highest down payment you can so that you need to finance a smaller amount. The cost is higher in the short term. Monthly payments are usually higher if you buy a car than if you lease it. This makes it more expensive until you finish paying off your loan. Taxes and interests are higher. You are paying the whole price, so the sales tax and the interests you pay are on the whole cost of the vehicle. How to finance a car Not all of us have the amount of cash we need to buy a car, so we need to take out a loan. That’s normal, but be sure to buy a car that you can afford. In order to get a good loan, know your credit score beforehand. If your credit is not good, get some quotes before going to the dealership. Then you can choose which loan is most convenient for you. When you are negotiating the terms of the loan, try to go for a shorter term. This will mean higher monthly payments but a lower interest rate, which will be cheaper in the long run. Always put at least 20% as a down payment. This will further reduce the duration of the loan. How to lease a car The initial steps of this process are the same ones as for buying a car: find a vehicle that suits your needs. Remember that there are some costs that can be negotiated. On the other hand, other costs, such as vehicle registration, cannot. The paperwork involved in a lease can be hard to understand. Always make sure that you are fully aware of its contents before signing a contract. How to get out of a car lease There are some ways to get out of a lease early. Here are a few: Transfer the lease This is the easiest way to get out of a lease and, therefore, the most popular. You can do this through a third party, although you should keep in mind that even if the lease company allows you to transfer the lease, you are still liable if the buyer stops making payments. Sell the car You can buy the car you are leasing at any point. You can then sell the car to another person or to a dealership. Pay penalty fees You can always return the car to the company and pay the penalty fees, although this is almost never the recommended course of action. You will end up losing money, so it is better to just sell the car. How to get out of a car finance There are some ways to get out of a loan early without damaging your credit scores. Here are a few: Sell the car If the car is worth more than what you owe, you can sell it and use that money to pay off the loan. Transfer the loan A second option is to transfer the loan to whoever wants to buy your car. The new owner will have to be approved by the lender, however, and lenders can be hesitant to accept transfers. Refinancing the loan If you can’t sell your car, you can discuss refinancing your loan with your lender. This is normally the easiest option. Transfer the car to the lender This should be a last resort, but if no other option is viable, you can voluntarily give the vehicle to the lender. Financing vs. Leasing A Car Conclusion As you consider both option for your new car, consider the end results and what you want. If you want to own something in the end, then financing is the best option for you. If you want to have the best new car each year, then leasing is your best option. In both cases though, you are paying more money for something than if you paid the full price in cash which is always cheaper in the long run.