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Itâ€™s been a few years since youâ€™ve been driving, and that car with no A/C just isnâ€™t doing it anymore. Maybe your car is falling apart, or you have an issue that isnâ€™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 itâ€™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 youâ€™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 youâ€™re buying from. Sometimes youâ€™ll need a cosigner; if youâ€™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 donâ€™t like to give money to someone if itâ€™s not been proven that the person can or will pay it back.
With a cosigner, youâ€™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 donâ€™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 donâ€™t have a steady job, then you may want to be careful when youâ€™re financing a car. Not only will it be more expensive because of interest rates, but also you canâ€™t predict your future pay, which can result in you missing payments.
When youâ€™re financing a car, you are dealing with loans. When youâ€™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 youâ€™ll be paying the loan, significantly lowering the total amount you will pay. If youâ€™re looking for a car, then go ahead and try saving in the meantime. Youâ€™ll be saving yourself money in the long run!
One disadvantage to leasing a car is the interest that youâ€™ll accumulate. While low percentages sound great, they get applied to thousands of dollars. Over the years, that adds up, and youâ€™ll be paying much more than the car ever cost. On top of that, cars depreciate in value quickly, so thereâ€™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 youâ€™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 donâ€™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 youâ€™re someone who likes change, or you donâ€™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 youâ€™re buying or financing a car, itâ€™ll probably be older than any car that youâ€™re leasing, so youâ€™ll have to worry about repairs that are bound to happen. With brand-new cars that are being leased, you donâ€™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 isnâ€™t possible in most cases. If you love traveling, youâ€™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 donâ€™t get anything out of it. Youâ€™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 donâ€™t get to sell a leased car like you can a car that youâ€™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 youâ€™ll have to pay fees at the end of your contract. Pretty much everyone gets scratches or dings in their cars, even if itâ€™s just from rocks being thrown up on roads. Itâ€™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. Itâ€™s also important to keep in mind the contract period. If youâ€™re thinking about starting a family within the contract time, then you may want to rethink leasing a car.