Leasing vs Buying A Car
When searching for the perfect new ride, one thing that comes to mind is deciding whether to lease or buy your new vehicle. Before you can make the best decision for you and your financial goals, it’s important to have a better understanding of the differences between entering a lease contract and financing with an auto loan.
When To Lease and When To Buy
The first consideration is knowing how long you plan to keep your car. If you are someone who tends to keep their vehicle for a longer period or until there is a need for a replacement, buying the vehicle might be a best option for you.
Vehicle leases tend to be for short-term shoppers as they have shorter terms in the agreement. Ask yourself, how long can I picture myself in this vehicle model? Will my needs change in the next couple of years? If you see your needs only being met temporarily, leasing the vehicle might be a better option to consider.
The second consideration is understanding how you will utilize your car. If you intend to drive your vehicle regularly, adventuring on road-trips, or making some extra income with ride-sharing, buying your car might be a better fit than leasing.
When you enter a lease agreement, it is very common that there will be a mileage limitation within your contract. If you are thinking about leasing and you anticipate racking up the miles, read the terms of the leasing contract carefully and evaluate if those terms fit your lifestyle. Keep in mind choosing to finance has no limitations on how long or far you drive.
Finally, when deciding between buying and leasing a car it’s important to understand what happens when your lease is up and what happens when your loan is paid off.
With leasing, once you have come to the end of your contract, you will have two options:
- Choose a new vehicle and sign a new contract.
- Decide if you would like to purchase your current car with a lease buy out.
With a lease buy-out, you will have the opportunity to finance the car and there can be many pros and cons with that option. One major factor is knowing what your loan to value will be if you buy out your contract. Oftentimes with a lease buy-out, the loan to value can exceed the limitations offered by your financial institution thus causing you to put money down, or be subject to higher interest rates.
If you anticipate wanting to later buy the vehicle you have once leased, financing from the start is the better option. By doing this you can potentially save more money and once your loan is paid off you will receive the title of your car.
Ready To Make Your Decision?
Choosing whether to lease or buy comes with a lot of factors that need to be considered. If you find yourself needing a deeper understanding to make the best decision, visit the Money & Beyond Portal where you’ll find our course on Buying vs. Leasing.
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