Car leasing or car financing – Which is the best option
Car Finance

Car leasing or car financing – Which is the best option

To-be car owners are often caught in the dilemma of financing vs. leasing a car. This is because with the purchase of a new car, one is required to spend a huge amount. On the contrary, you only have to pay a minimum amount every month for leasing a car but the cycle of paying money for the car never ends.

Things to consider when leasing or buying a car

Financial factor is the most crucial thing that every consumer keeps in mind before making a purchase or opting for leasing. Expenditure decides what the consumer should choose because, at the end, he is responsible for paying out money. Now take a look at the aspects that you must keep in mind before finalizing what can fit your needs.

Initial fees and down payment

Generally, the lease deals are available with low down payments that you are compelled to pay before starting to use the car. Or, you can get a dealer who can renounce the down payment over the course of time. In this way, you will have to pay only a minimum amount of sales tax and on the lease.

If the down payment amount remains low, you are not likely to face financial constraints.

Monthly cash flow

When you choose to go with car lease, you will find that the down payment amount being lower in comparison to the financing a vehicle with the similar loan terms. With the lease, you are bound to pay for the car depreciation apart from its entire vehicle cost. If you do not jeopardize your monthly cash flow, it is better to focus on leasing because it seems viable for those who run on a low budget.

Purpose of buying a car

In case, you choose to lease and are up for utilizing the model for commercial purpose, a certain section of depreciation of the vehicle and financing expenditure might be deducted from your taxes.

Interest on car loans cannot be used as deductible and IRS has provided a guide for calculating tax deduction for the leased car.

Car mileage

How much you drive is important to consider when it comes to car financing or leasing. Suppose, you drive around 10,000 to 15,000 miles based on the lease agreement and you might have to pay additional charges for every mile.

Companies that take care of money leasing usually take 15% or 20% for extra miles from you and paying penalty for additional mileage can problematic for all.

Problems with car leasing

When you choose to lease, you should keep in mind that companies like Edmunds and LeaseCompare own the cars. Although car leasing has certain benefits including tax savings, lower down payment, warranty and upgraded technology, you should not overlook the risk factors. When it comes to financing vs. leasing a car, here are the cons of car leasing you should keep in mind.

  • Paying for extra mileage
  • Getting permission for ride sharing from the leasing organization
  • Paying for damage or customization
  • There is no equity and you will not be left with one penny for buying a new car
  • You will be in need of having a great credit score record

Cons of car financing

One of the benefits of buying a new car is that even with bad credit, you can get a car because car loan approval gets easier for the purchase of a new car compared to the leasing of a car. However, with bad credit, you can buy cheap cars. If you have to choose from financing vs. leasing a car, it is important to consider the following downsides of financing a car.

  • Paying up to 30% for down payment.
  • Depreciation can become expensive.
  • Long-term loans might make you pay a low amount of money but the interest is high.
  • One of the reasons why people prefer leasing a car over financing is that financing a car is more expensive than leasing.

When it comes to financing vs. leasing a car, it is not easy to choose which scenario can be the best for you because the decision completely depends on your financial condition. You should finalize your budget and calculate benefits and costs so that your needs are fulfilled in a proper way. While finalizing your decision and going through a phase of critical thinking, you should pay heed to your credit score and lifestyle as well.