Getting a lease is basically renting your car instead of buying it outright. Instead of paying the entire cost of the car, you pay the difference between the showroom value of the car, and what the dealer thinks it will be worth when you bring it back.
This method of auto financing can save you money on depreciation and allow you to always have the most recent model of car. Monthly payments will also be lower if you lease, since you are not paying the full price of the car. Despite all these benefits to financing with a lease, leases are not for everyone. If most of the following criteria apply to you, you may want to consider leasing.
- You like always having a new car.
- You do not put an excessive amount of miles on your car
- You treat your car extremely well.
- You do not plan to keep this car very long.
- You use your car for business (you can deduct both depreciation and interest from your taxes).
- You don't want to pay very much down for your car.
A lease is not your best method of financing if:
- You tend to be hard on cars.
- You don't know how long you want to own your car.
- You drive a lot.
- You don't feel the need to constantly have a new car.
- You have poor credit (leases are even harder to get with bad credit than car loans).
Leasing is generally a more expensive method of auto financing overall. You don't build up equity, but have perpetual car payments. However, if you regularly buy new cars, a lease is a great way of financing that will allow you to constantly have a new car without the hassle of selling the old one. If you don't want your car for very long, this could be your best means of financing you car.
Financing with a lease is, however, not without its risks, and if you take this route be sure you are well informed. There are many different kinds of lease fraud, also, there may be steep penalties for early return. Unfortunately, the dealer will likely charge you extra if you drive extra miles, and another possibility is that your insurance may not cover theft or accident for a leased vehicle. When by lease, know all the terms of your lease to avoid unpleasant surprises.
If you choose to finance through a loan instead, consider financing with a home equity loan, or line of credit. Their rates are often lower than most other options. If you are not a home owner, financing your car through credit unions or banks is another possibility. Usually they will give you a better rate than the dealer, unless the dealer cuts you an especially good deal on your financing. A final tip for auto financing: comparison shop. Before buying your auto, compare the rates of financing with different businesses. The time it takes is well worth the money you'll save by getting a lower interest rate.