SHOPSMART AUTOS – CUSTOMER INFORMATION – MARCH 7, 2021
Leasing vs. Buying a New Car Comparing the two major finance choices Buying a vehicle with a conventional car loan is pretty straightforward: You borrow money from a bank, credit union, or other lending institution and make monthly payments for some number of years. A chunk of each payment is interest and the rest is principal. The higher the interest rate, the higher the payment. As you repay the principal, you build equity until—by the end of the loan—the car is all yours. As car prices rise (now averaging over $38,000) and buyers start to demand the latest safety features that are available only on newer cars, leasing a vehicle has become a mainstream alternative to buying. With a lease, buyers make a monthly payment to drive a new car for a set term. That payment is often less than the monthly cost of financing a new vehicle, but buyers must return the car at the end of the lease term. With more people than ever working from home, the mileage restrictions on a lease may not be a factor for a lot of shoppers. Quite the opposite: Many might find they don’t use the miles they have paid for. The predictability of the payments and ownership costs (no expensive repairs when under warranty!) has its appeal. However, life can be unpredictable, as we all learned in 2020, and a lease has less flexibility than a purchase. To find out whether leasing is right for you, we take a look at the pros and cons. The Upside of Leasing On the surface, leasing can be more appealing than buying. Monthly payments are usually lower because you’re not paying back any principal. Instead, you’re just borrowing and repaying the difference between the car’s value when new and the car’s residual—its expected value when the lease ends—plus finance charges.The Major Advantages of Leasing
- You drive the car during its most trouble-free years.
- You’re always driving a late-model vehicle that’s covered by the manufacturer’s warranty, which may include free oil changes and other scheduled maintenance.
- Having a predictable monthly payment with no surprise repair costs can make it easier to stick to a household budget.
- You can drive a higher-priced, better-equipped vehicle than you might otherwise be able to afford. This may allow you to opt for lifesaving safety features that aren’t available on lower trims or used cars.
- You don’t have to worry about fluctuations in the car’s trade-in value or go through the hassle of selling it when it’s time to move on.
- There could be significant tax advantages for business owners.
- At the end of the lease, you just drop off the car at the dealer.
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