I Need to Change my Car, Should I Lease or take a Loan?

Leasing a car is like renting a vehicle: you pay a monthly installment which includes a fee for the use of the vehicle, and some other fees and costs, like insurance, maintenance, administrative fees, etc. However after a period of time leasing, you are entitled to exercise the right to purchase the vehicle for a considerably smaller amount than the retail price of the car. If you decide to do so, then the monthly payments you’ve made can be considered to be part of the purchase price of the car and you only have to put enough money down to complete payment.

Benefits of Leasing

Leasing is an excellent option for those who like changing their car every two or three years because you don’t need to sell the vehicle, you just have to notify the financial institution you don’t want to pursue with the leasing for another period and return the car. You can even arrange for the car to be exchanged for a new model or another brand and model and start paying the leasing installments for this new car.

Since the car remains property of the financial institution, it doesn’t belong with your assets and you won’t have to pay taxes over it. Moreover, in some cases it can be deducted from taxes as an expense. This is very much like renting a car, however, it’s considerably cheaper as the leasing installments are but a portion of a car rent installment.

Drawbacks of Leasing

For those who like ownership, leasing won’t satisfy their needs. As stated before, the car leased remains property of the leasing company, and thus you cannot do what you please with it. It cannot be repainted, fixed, have the interiors changed, etc. without the authorization of the leasing company. It cannot be sold or rented and you can’t decide which insurance company to hire or which mechanic can repair it.

There are also some limitations as to the mileage you can drive with the car. If exceeded there are penalty fees. Also, since the leasing period is limited, unless you exercise the right to purchase the vehicle, you’ll have to return it in the same conditions that it was given to you. Any reparations that have to be done to the car will be your responsibility unless the insurance covers them.

Summing up

As you can see, the answer to whether you should request a loan to buy your new car or lease, is not easily answered. You need to analyze if your needs are satisfied with the leasing option or you prefer to own your car even if you have to pay a little more and have a debt on your back for a couple of years. Bear in mind though, that unless you plan to have your car for many years, a new car loses a portion of its worth immediately after you buy it. When leasing you don’t suffer this drawback, since the car does not belong to you.

Sarah Dinkins is an Expert Loan Consultant in the financial industry who helps people to repair their credit situation and get approved for home loans, unsecured personal loans, student loans, consolidation loans, car loans and other types of loans and financial products. In her website, badcreditfinancalexperts.com she writes useful articles for people looking for professional advice in the finance field.

Paying Cash or Financing: Which Will Get You A Better Deal On A Car?

It's funny the false sense of security that green money holds. It's not resistant to water, fire, or wind. It rips easily and is easy to lose in a crowd. If you don't keep both eyes on it, it will disappear. If you stack it up very far it will tip over and land in a messy pile at your feet. It smells funny.

Yet those with lots of it feel they hold the magic wand.

If I sauntered up to you and said, “I'd like to give you this crispy new $50 dollar bill for the sweater you're wearing,” you'd look at me funny. You'd definitely think about it, because you know you just bought it last week for $35 and can go right back to that same store tomorrow and get another one if you sold me yours.

But, if my brother walked up next to me and said, “I'd like to give you $50 right now, and then $1 per day for the next 7 days,” you'd look at him, you'd look at me….and you'd hand him your sweater.

The same holds true with people who think that paying cash for a car will get them a better price from the auto dealership.

You walk in with $10,000 cash and make an offer to hand over your sack of money for that car over there, which lists for $13,595. Sounds like a good deal to you. The dealership gets paid their full amount right now, today, and that's that.

Meanwhile, another person walks in with an offer to pay the exact same amount for the exact same car. And they sell him the car, not you. How the heck did that happen?

Let's compare the two of you. That guy had perfect credit. So do you. That guy had a $10,000 offer, so did you. That guy needed financing. You didn't. Does that really matter? You bet your daisies it does.

Here's how:

That guy wanted to pay $10,000 for the car. That is the price they listed on the contract. His credit qualified him for the best interest rate available. For example purposes, let's say 6.5%. But, this guy didn't know what rates he qualified for, so he agreed to pay 8.9%. He also didn't know the exact math on what his payments would work out to be, but he had budgeted about $250 for his car payment. They shook hands at $246.

Back in the finance office, they were able to give him an extended warranty, GAP and Life & Disability Insurances which only raised his payments $3. He left, ecstatic with his new car warranty and with payments of $249 a month.

So, why did this guy get the car for $10,000 and you didn't? Let's do the math:

· Financing $10,000 at 6.5% for 60 months is a payment of $195.66.

· Financing $10,000 at 8.9% for 60 months is a payment of $207.10, a difference of $11.44 per month.

· Over the 60 month contract, that is $686.40 that goes right into the dealership's pocket.

But he didn't have payments of $207.10, he left happily at $249. Well, that extra $41.90 times 60 months equates to $2514 in products and profit that the finance manager was able to sell him when he signed his paperwork. That is why he was able to get so many “extras” for such a little change in payment.

Let's just say, for math purposes, that the products that the F&I guy sold him had a hard cost of $1500. That left $1014 in profit, PLUS the $686.40 of profit from the extra interest rate they charged him. On a $10,000 car, on financing ALONE, the dealership made $1700 profit. And we didn't even go into how much they owned that car for to begin with.

So, the next time you think that paying cash speaks louder than payments, think again. The dealership is watching out for their bottom line, and they know all the tricks to getting the most out of every customer. There's no magic wand that can protect you from that, no matter how hard you wave it in front of them. Without knowledge and a little due diligence, you can assure yourself the same destiny as that fragile pile of green paper lying there in front of you.

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