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It’s been a few years since you’ve been driving, and that car with no A/C just isn’t doing it anymore. Maybe your car is falling apart, or you have an issue that isn’t worth the cost to fix it. Whatever your reason, you might find yourself looking for a new car. While buying a car with cash is always nice, sometimes it’s not a possibility. In that case, you have two options: financing a car or leasing a car. Both options are very different, and both have their ups and downs.
Financing a Car
Financing a car means that you’re essentially taking out a loan in order to buy a car. There are different avenues for doing this; you can take out a loan from your bank or from the car dealership that you’re buying from. Sometimes you’ll need a cosigner; if you’re in your early twenties, you probably will need to have someone to cosign for you.
A cosigner is normally needed for those with very little credit or for those with bad credit. A cosigner can be anyone who is approved for the loan on the car. Oftentimes, a car loan can be hard to get for those with very little or bad credit. Dealerships and banks don’t like to give money to someone if it’s not been proven that the person can or will pay it back.
With a cosigner, you’ll be able to buy a car and pay monthly, which can be a good or bad thing. If you have a steady job that you can create a budget around, then you know exactly how much you can spend monthly on a car payment. You don’t want to spend too much money on a car payment; experts recommend spending no more than 15% of your income on a car payment. If you don’t have a steady job, then you may want to be careful when you’re financing a car. Not only will it be more expensive because of interest rates, but also you can’t predict your future pay, which can result in you missing payments.
When you’re financing a car, you are dealing with loans. When you’re dealing with loans, there are a lot of different things that can affect how much you pay, including how much cash you can pay at the time. The more cash you can offer up front for a car will lower your interest rates and the length of time you’ll be paying the loan, significantly lowering the total amount you will pay. If you’re looking for a car, then go ahead and try saving in the meantime. You’ll be saving yourself money in the long run!
One disadvantage to leasing a car is the interest that you’ll accumulate. While low percentages sound great, they get applied to thousands of dollars. Over the years, that adds up, and you’ll be paying much more than the car ever cost. On top of that, cars depreciate in value quickly, so there’s not much of an opportunity to sell your car and get much money compared to what you paid.
Leasing a Car
You can think about leasing a car like an extended rental on a car. Essentially, you have a contract that you pay monthly in order to drive and use a car. After that contract is up, you return the car! This is a great way to drive a newer vehicle for cheap. All you have to do is pay a down payment (which is typically less than a down payment when you’re buying a car) and make monthly payments. Leasing a car has its own advantages and disadvantages.
There are a lot of people, especially younger people, who get bored easily. Sometimes having the same car for 15 years can get boring, and some people don’t realize that when they buy a car. If you buy and resell a car quickly, you typically end up losing a lot of money. If you know that you’re someone who likes change, or you don’t want to take out a loan and commit to buying a car, then leasing a car is a great option!
Leasing a car also helps you save money when it comes to car repairs. If you’re buying or financing a car, it’ll probably be older than any car that you’re leasing, so you’ll have to worry about repairs that are bound to happen. With brand-new cars that are being leased, you don’t generally have to worry about repairs.
While leasing a car can sound really great, there are a few major issues. When you lease a car, you typically have a mileage that you have to keep the car under every year. Those mileages can be very small, so traveling with a leased car isn’t possible in most cases. If you love traveling, you’ll have to look for other types of transportation. You can always rent cars to travel, or take a plane!
When you lease a car, you get no return on your money. You pay the down payment at the beginning and pay monthly on the car, but at the end of your contract, you don’t get anything out of it. You’re paying for a car in the moment, similar to renting an apartment; you will have nothing to sell at the end of your payments. You don’t get to sell a leased car like you can a car that you’ve bought or financed.
Leased cars also need to be kept in pristine condition. If you get any scratches or dents in the car, then you’ll have to pay fees at the end of your contract. Pretty much everyone gets scratches or dings in their cars, even if it’s just from rocks being thrown up on roads. It’s expected that the inside of the car will be kept perfect as well, so if you have kids, then leasing a car is not for you. It’s also important to keep in mind the contract period. If you’re thinking about starting a family within the contract time, then you may want to rethink leasing a car.