Hey! I’ve been thinking about getting a new car and this would be my first time getting one so i don’t really know all the ins and outs. I really just wanted to come on here and ask what the difference between leasing and financing is. And any other advice on getting a car is welcome but not necessary. thank you!!
In: Economics
Financing means that you are borrowing money to buy the car.
Leasing means that you are renting the car and have to give it back when you are done.
**The advantages of owning the car:**
– When the payment period is done, you own the car.
– Once you own the car, aside from off-warranty maintenance costs, you can run it for years without having to make any payments and you can sell it for its value to buy another car.
– You own it, so you can always sell it if you don’t like it. But cars depreciate rapidly, so you’ll never get what you paid for it. Selling a car in the first couple years of ownership is rarely a good idea.
**The downsides of owning a car:**
– It’s more expensive month-to-month during the payment period
– Cars depreciate in value very quickly, and a lot of people don’t like owning older cars or beaters
**The advantage of a lease are:**
– The monthly payments are usually lower making it more attractive to a lot of people.
– Since the lease period usually matches the warranty period you don’t have to worry about maintenance as you can bring it back to the dealer if there’s a problem.
– Once the lease is up, you can immediately lease a new car so you are always in a newer car with an active warranty at a lower monthly rate.
– There’s typically a buy-out option at the end of the lease where you can buy the car
**The downsides of a lease:**
– It costs you a lot more in the long run
– You are stuck with the car, if you hate the car you can’t sell it and it’s tough to get out of a lease agreement
– Buy-out clauses + a lease will cost you more than financing in the first place
– Leases have restrictions of have many miles you can put on the car, and there’s a financial penalty if you exceed it
– At the end of the lease you can face unexpected fees like being over the mileage limit, or due to damage to the car, etc
**Overall**
– Leasing a car is rarely a financially sound option unless you’re a business and a car is an expense, or you’re the type of person that really loves always being in a newish car.
– Cars depreciate so fast that buying a used car is almost always a more financially sound option overall
– Car maintenance is nothing scary, and paying to fix your car is cheaper than buying a new car because you don’t want to fix it.
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