Buying versus leasing your next vehicle
If you’re in the market for a new car, there are a lot of decisions to make. Things like make and model, purchase price, gas or electric, length of factory warranty and so on. But choosing your financing method is also very important. There are two main types of financing – buy and lease.
There are pros and cons to both. Here are things to consider as you make your financing decision.
Check your budget and determine your affordable monthly payment.
Let’s face it. Monthly payment is probably the most important factor in affordability. Be sure to know what you can afford before you even start shopping.
While NGFCU does not finance vehicle leases, monthly lease payments can be lower than traditional auto loan payments. That’s because lease payments are only paying a portion of the entire purchase price of the car. However, this also means you never own the car within the lease period. Most leases include a short (36-month) payment plan which means you will need to return the car after 36 months or agree to the buyout. Oftentimes, the buyout is higher than the actual value of the car. If you decide to buy the car at that time, you will be back in traditional loan financing.
Another important note about loan financing. A car dealer may tell you that financing is only available through them or from their manufacturer. That is not true. You can arrange financing through a lender like NGFCU too.
Consider the amount of your down payment.
Most traditional auto loans offer 100% financing, meaning you don’t need a down payment at all. Lease programs almost always have payments required upfront. While it isn’t technically a down payment, it is money you will have to pay to execute the lease agreement. In some cases, these payments can be quite high. Be sure to ask if you are considering a lease.
Consider your length of ownership and number of annual miles driven.
If you plan to buy a new car every 3 years, leasing can make good sense. However, an important thing to remember is that leasing programs include mileage limits, often an average of 1,000 miles per month. If you exceed the mileage limit at the end of your lease term, you will be responsible for the cost of the excess mileage surcharge. The surcharges can range from 10¢ to 30¢ per excess mile. That can add up quickly. You can negotiate a higher mileage limit at the time of the original lease, but that will affect the monthly payment.
If you plan to keep your car for more than 3 years or drive more than 15,000 per year, traditional financing is probably your best bet.
Remember the cost of maintenance.
Whether you lease or buy your car, the cost of maintenance needs to be considered. Some people might neglect routine maintenance on a leased car with the philosophy “the car doesn’t belong to me”. That is not the case at all. If you return a lease car that has not been maintained, or is damaged with excess wear and tear, the leasing company will charge you for the repairs and any possible reduction in value as a result. You need to care for a leased car in the same way you care for a car that you finance with a traditional auto loan.
Check the interest rate.
Traditional auto loan financing clearly shows the interest rate charged on the loan. The rates are normally fixed and will vary by the term of the loan and the percentage of down payment. That is not as easy to see on a lease contract. If you are considering leasing, be sure to get the interest rate. In some cases, it can be higher than traditional financing meaning you are paying more interest over the term of the lease.
If you need any assistance to compare the cost of leasing versus traditional financing, contact an NGFCU representative and discuss what’s right for your wallet and lifestyle. Remember NGFCU will not finance for a lease but, we will finance for traditional loans!
If you are currently in the market for a new or used vehicle, get pre-approved before you shop.