Buying vs Leasing a Car
Purchasing a vehicle is the second-largest purchase most of us will make in our lifetime — after buying a home. And if you’re like most of us, you aren’t walking into the dealership and stroking a check to pay for the entire vehicle. Even if you can pay cash for a vehicle, it’s often more advantageous to finance a vehicle with “free” money, like 0% APR. Nonetheless, most people have two major options: buying vs leasing a car. While there is no right or wrong option, it’s about what’s best for you and your situation. Fortunately, the team at Kelsey Chevrolet can help. Let’s take a closer look at buying vs leasing a car. And for a more tailored solution don’t hesitate to reach out to the team at Kelsey Chevrolet.
Buying a Car, Truck, or SUV with an Auto Loan
Undoubtedly, the most popular way to purchase a vehicle is by using an auto loan. With an auto loan, you’ll pay the agreed-upon price of the vehicle as well as any applicable fees and taxes. Instead of having to write a check for the entire amount at the time of purchase, a finance company, bank, or credit union will pay the dealership. In turn, you’ll pay the lender a specified amount of money over a predetermined amount of time until the full balance of the loan is repaid. Because there is a risk that borrowers may not pay the loan on time or default, lenders charge what is called interest, which compensates them for the risk associated with issuing the loan.
Choosing the Best Auto Loan Term
The auto loan term represents the number of months or period of time you agree to pay the loan. Auto loans are available in a wide range of terms, such as
- 24 months,
- 36 months,
- 48 months,
- The ever-popular 60 months,
- 72 months, and
- Even 84 months.
How to Choose the Best Auto Loan Term?
If you are on a tight budget or looking for as low monthly payments as possible, choosing a longer-term will usually help you achieve this goal. However, the longer the term, the more interest you’ll pay over the life of the loan. Determining which term is right for you can have major implications, so it’s critical to decide with precision.
The Interest Rate
As we mentioned previously, the interest rate is the premium you pay the lender for issuing the loan. If you have excellent credit, you may qualify for extremely low-interest rates or even 0% APR. On the other hand, those with lower or no credit do pose a higher risk to lenders, which necessitates higher interest rates. At Kelsey Chevrolet, we specialize in working with all types of credit and will always work to help you find the lowest interest rate.
Leasing a Car, Truck, or SUV
For simplicity’s sake, an auto lease is like an auto loan combined with renting a vehicle. With a lease, you’re known as the lessee. Just as you would with an auto loan, you’ll make monthly payments for the vehicle at a set amount for a predetermined amount of time. The key difference is with an auto loan, you’re working to own the vehicle. When you lease, you’re essentially renting the vehicle and will have a set number of miles you’re allotted to drive during a specified amount of time. Once you reach the end of the lease’s term, you will return the vehicle back to the dealership.
Why Are Auto Leases Attractive?
What makes auto leases extremely attractive are the lower monthly payments. With a lease, you only pay for the part of the vehicle you use or the depreciation amount, which leads to lower monthly payments. Because of this, people are able to drive nicer vehicles for significantly lower monthly payments. Leases are also attractive options for those who tend to change vehicles often or those who always want the latest and greatest features.
Key Lease Terms You Should Know
While similar, leases have unique terminology that you should be familiar with:
- Capitalized cost is the total value of the vehicle and any agreed-upon services at the beginning of the lease, including fees.
- Capitalized cost reduction is a term used to explain reductions in the capitalized cost. Capitalized cost reductions are subtracted from the gross capitalized cost to calculate the lease balance. Capitalized cost reduction is essentially a down payment in lease speak. For example, if you put cash down or trade a vehicle in, your capitalized cost will be lowered by the amount of the capitalized cost reduction.
- Residual value is the agreed-upon value of the vehicle at the end of a lease when you return it. If your vehicle holds its value well, it will have a high residual value, which will be in the lease contract.
- Depreciation is the speed or rate at which the vehicle loses value over time. When you lease, you only pay for the depreciation — instead of the total value of the vehicle.
- The money factor is a fancy way to say lease interest rate. You can calculate the equivalent APR by multiplying the money factor by 2,400.
Should I Choose an Auto Loan vs Auto Lease?
When it comes to choosing between an auto loan vs auto lease, there are no one-size-fits-all answers. Some people abhor leases, while others prefer leasing. For example, if you’re looking care-free driving experience and tend to not drive a lot, you may be a prime candidate for leasing. However, you don’t have to decide for yourself. The team at Kelsey Chevrolet specializes and matching your unique needs to the best auto finance solution. We will get to know you, your preferences, budget, goals, and persona to guide you to the best-tailored auto finance solution.