Buying A Car – Leasing And Financing
Buying a car is deemed a costly scheme. Well, before you buy one, you have to do some research on which car will best serve your needs. Besides, this does not just step that you need to take; after choosing what favors your necessity, you’ll have to think about how can you afford it. There are two common options that you can choose from when you decide to obtain a vehicle. It can either be through leasing or financing. In this guide, we will tackle the two options and define how it works.
Financing a Car
When purchasing for your dream car and paying it through financing, the cost of that car is being amortized for several months, with an agreement on the interest rates that it accumulates over the period. Normally, car loans acquire five-year terms.
If you’re obtaining the total car cost of the car and making on-time payments, it will be possible to pay it off and own the car in 5 years. Also, some financing institution offers 8 years duration. In case you own the car as you pay it in full, you’ll be accountable for any repairs and maintenance, which can be costly as well.
Leasing a Car
If you chose to lease a car, you are acquiring the deprecation cost the agreed terms. This will include the residual value, which refers to the value of the car at the end of your agreed terms. In this manner, the leaseholder is liable for ensuring the payments, subtracted by the residual value.
For instance, when leasing a car for about three years, you’re allowing to ensure payments on the amount, which will depreciate when it’s brand new up to the end of the lease agreement. The downside is since car value tends to depreciate fast even in the initial years, you’ll be paying a high amount that the car does not justify or worth.
Cost Breakdown When Buying a Car
Leasing
Given: Buying Honda Civic Sedan DX
Current Price: $18,517.50
Monthly Payment For Lease: $260.65
Lease Rate: 2.99%
Terms: 48 months
Total Payments at the end of the term: $12,511.20
Residual Value: $7510.50
If you decide to buy the car at the end of the term it can cost you $20,021.70
Financing
Given: Buying Honda Civic Sedan DX
Current Price: $18,517.50
Monthly Payment For Financing: $328.56
Lease Rate: 2.49%
Terms: 60 months
Total Payments at the end of the term: $19,713.60
The difference is $308.10 as compared to the cost when leasing. Though there’s no huge difference, when you’re leasing and you decided to obtain a new one, you’ll still be making monthly payments each month.
Other Things to Consider
When purchasing a car, leasing is more costly than financing over the period. However, the pros between leasing and financing are not much significant depending on your prefer getting the new model or if you favor owning a car regardless of the model.
Besides, you must consider the frequency and distance of your driving when calculating your cost for leasing or financing. if you’re driving beyond the limit, it’s beneficial for you to choose financing as there will be no rules imposed on how much you can drive.
