Owning a car : Finance vs Lease vs Buy it outright
Buying a car is probably one of the biggest purchases that you will ever make in your life. At the same time, one of the biggest decisions that you will have to make is how you will go about paying for that automobile. In a nutshell, there are three primary options for you to consider: financing, leasing, or cash purchase. Which is the best for you?
FINANCING
Financing is one of the most popular ways to buy a car, because it lets you spread out the cost of the car over the course of several months. Financing is exactly the same as taking out a bank loan to pay for your car, so this means that there is interest involved. This may or may not necessarily be a bad thing!
On the plus side, the cost of the car can be spread out over the course of several years. This is ideal for customers who don't have the full amount of money available at the time of purchase, but want to step into a car that's a little more expensive. Instead of paying $30,000 up front, your monthly payment might only be $500. That sounds a lot more affordable, doesn't it? Furthermore, there are essentially no restrictions on how you use your car and you completely own it when the term is over.
On the downside, you will be paying more for the car through financing than if you were to purchase it outright from the beginning. What's more, the interest rate offered by car financing companies may not be the best available; it might be a better option to get your own line of credit from the bank.
LEASING
Leasing is ideal for people who want to change cars on a regular basis. The monthly payments are typically smaller than financing and when the lease term is over, the two parties -- the dealership and the customer -- can go their separate ways with no strings attached. Maintenance and warranty repairs are oftentimes included as well. This provides exceptional peace of mind.
On the downside, you do not own the car while you are leasing it. There will likely be stringent usage restrictions -- like the number of miles you're allowed to put on it -- and they may not allow you to perform any aftermarket modifications. At the end of the lease term, you do not own the car. You can buy out the lease, but the net total will be more than if you were to finance.
CASH PURCHASE
A cash purchase is when you pay for the total price of the car up front. There are no restrictions, no lease terms, and no interest rates to consider. For people who have the extra money, a cash purchase offers the greatest freedom of the three options, because there is no loan or lease agreement hanging over your head.
On the downside, you are spending a large sum of money up front, and you effectively lose out on the opportunity cost for that money. What if you suddenly come into a situation where you need money? What if you wanted to use that cash to invest? This is really the only downside to a cash purchase.
In the end, a cash purchase is probably the best solution if you can afford it. The amount of money you'd earn by investing is probably less than the interest rate charged for financing. Furthermore, you don't have the usage restrictions of a lease agreement. Buying a decent used car could be an even better solution, because it offers the flexibility of a cash purchase. Automobiles depreciate the fastest in their first couple of years, so you can probably find a good deal on a late model car too.
FINANCING
Financing is one of the most popular ways to buy a car, because it lets you spread out the cost of the car over the course of several months. Financing is exactly the same as taking out a bank loan to pay for your car, so this means that there is interest involved. This may or may not necessarily be a bad thing!
On the plus side, the cost of the car can be spread out over the course of several years. This is ideal for customers who don't have the full amount of money available at the time of purchase, but want to step into a car that's a little more expensive. Instead of paying $30,000 up front, your monthly payment might only be $500. That sounds a lot more affordable, doesn't it? Furthermore, there are essentially no restrictions on how you use your car and you completely own it when the term is over.
On the downside, you will be paying more for the car through financing than if you were to purchase it outright from the beginning. What's more, the interest rate offered by car financing companies may not be the best available; it might be a better option to get your own line of credit from the bank.
LEASING
Leasing is ideal for people who want to change cars on a regular basis. The monthly payments are typically smaller than financing and when the lease term is over, the two parties -- the dealership and the customer -- can go their separate ways with no strings attached. Maintenance and warranty repairs are oftentimes included as well. This provides exceptional peace of mind.
On the downside, you do not own the car while you are leasing it. There will likely be stringent usage restrictions -- like the number of miles you're allowed to put on it -- and they may not allow you to perform any aftermarket modifications. At the end of the lease term, you do not own the car. You can buy out the lease, but the net total will be more than if you were to finance.
CASH PURCHASE
A cash purchase is when you pay for the total price of the car up front. There are no restrictions, no lease terms, and no interest rates to consider. For people who have the extra money, a cash purchase offers the greatest freedom of the three options, because there is no loan or lease agreement hanging over your head.
On the downside, you are spending a large sum of money up front, and you effectively lose out on the opportunity cost for that money. What if you suddenly come into a situation where you need money? What if you wanted to use that cash to invest? This is really the only downside to a cash purchase.
In the end, a cash purchase is probably the best solution if you can afford it. The amount of money you'd earn by investing is probably less than the interest rate charged for financing. Furthermore, you don't have the usage restrictions of a lease agreement. Buying a decent used car could be an even better solution, because it offers the flexibility of a cash purchase. Automobiles depreciate the fastest in their first couple of years, so you can probably find a good deal on a late model car too.
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