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The decision to auto finance and purchase a car, or lease one through a dealer lease agreement, can be a tough one to make for many consumers. Financing a car can feel overwhelming and expensive for some car buyers, which is why a lease may seem more appealing. However, a lease can be discouraging for car shoppers because they never own equity in the car. Both a car loan and a lease agreement have different pros and cons that should be examined before making a decision. Consumers who are educated on the benefits and drawbacks of each can have an easier time deciding which option is best for them, their budget and their lifestyle.
The characteristics of vehicle finance may appeal to those who want to own a vehicle, but not pay cash for it at the time of purchase. A leasing option may be more appealing to a car shopper who wants a more affordable payment and doesn’t mind trading the vehicle in once the terms of the agreement have ceased. Whether you’re considering a car loan or a car lease, consider the differences before deciding. Here are the main characteristics of each to help you make the decision between buying or leasing.
Leasing a Vehicle
Auto loans usually require a down payment, and the monthly payments are typically higher than lease payments. A lower monthly payment can be what attracts many car buyers to a lease agreement instead of a car loan. Checking the market’s car loan interest rates is a good idea too because that will determine what the monthly payment will be, along with credit score and down payment ability. A more inexpensive monthly payment may be appealing with a lease agreement, but it’s also important to look at the terms of the agreement. The dealership may require you to maintain the vehicle through the dealership on a certain schedule, which can lead to pricey regular maintenance fees.
Choosing a lease instead of a car finance agreement can also limit you to the amount of mileage you can put on the vehicle. Most lease agreements specify how many miles you can drive within the lease agreement period, and any extra mileage on the vehicle will cost you a penalty fee when you turn the vehicle back in. When financing a car, the end of the loan means you have officially paid off the vehicle and are the owner. However, the end of a lease agreement is when you are required to turn the vehicle back in to the dealer, with no ownership at all. This is one drawback to a lease agreement that pushes many car buyers to look into the current auto loan rates.
Car Finance for Ownership
Auto loans may cost a bit more monthly and require a down payment, but many car buyers are still more attracted to this option. With affordable car loan interest rates, purchasing a vehicle can be more beneficial because the buyer will actually own the vehicle once the loan period is over. When financing a car, you are free to customize or maintain the vehicle as you wish, as long as the loan payments are being made on time. A refinance auto loan is also an option, so you can check into other loan options at any time and possibly find new terms and payments with a different source if available.
If used car loan rates are low, many car buyers opt to purchase a vehicle that’s a few years old. Brand new cars don’t hold their value, so signing an auto finance agreement for a used car can sometimes make the most financial sense. Car buyers can modify the vehicle, maintain it as they see fit, and use it for as many miles as needed, without financial repercussions from the dealership. With auto loans, the equity built into the vehicle transfers to the owner when the lease agreement is up, however, the car will still depreciate throughout the loan period. At the end of the auto loan, the owner can use this equity to sell the vehicle and buy a new one, or hold on to the vehicle and enjoy the absence of payments.
Searching for the lowest auto loan rates can be a hassle for car buyers, which is why some of them turn to a lease agreement instead. However, with affordable car loan interest rates, a car buyer can own a vehicle without worrying about strict lease terms that involve mileage and maintenance. Choosing between leasing a car or purchasing a vehicle is a personal decision that should be made once a potential car buyer is educated on the pros and cons of each option.