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The process of acquiring a car isn’t the easiest or the simplest. Having a significant impact on your financial situation for years after you sign the contract, buying a car requires a lot of thorough consideration and thought. That’s especially true if you’re hoping to get your first car ever.
Aside from your budget and the car model you’re eyeing, one of the biggest considerations you need to make is how you plan to pay for your car. For a first time buyer, there are a few options. Those are car financing and car leasing.
How can you come to a decision, and which payment option is right for you? Consider this comprehensive guide to find out what will work best for your situation.
Unless you have enough money to purchase your car in cash, your first option is likely car financing. Essentially, what this means is that you’ll have your car financed by a lender. They’ll purchase the car in full from the dealership, and then you’ll pay them off on a monthly basis until you’re able to cover the entire loan amount.
At the end of the contract, you will own the car in full. Of course, the lender will bake an interest rate into your monthly amortization payments, and they will implement fines and penalties for missed or late payments. So in effect, car financing might be slightly more expensive. The good thing though is that all of the payments you make towards your car will result to your full ownership of the vehicle under contract.
On the other hand, first time car buyers also have the option to lease a vehicle. When you undergo a car leasing contract, you pay for the use of the vehicle that you choose. That means you’re paying for the depreciation of the car. On the upside though, since you’re not buying the car, the total amount of money you spend for the time you use the vehicle will never exceed its market value.
When the contract is over, you turn over the keys and have several options. The first is contract renewal. That is, you have the option to sign a new contract to lease the same or a different vehicle for another term. The second is contract termination. You can stop leasing all together and go on your own way. The third is purchase. In this case, the lessor can offer you the vehicle at a discounted cost.
When you’re leasing a car, the lessor reserves the right to place a limit on the use of the car. For instance, you can exceed a certain mileage. That’s because lessors will want to preserve some of the car’s worth. So they will charge you steep fees for exceeding a mileage limit. On top of that, the lessor will not pay for any repairs necessary. So if the car requires tune-ups or repairs while it’s in your care, then the responsibility to pay for those damages is completely yours.
If it’s your first time buying a car, then there are a few things you need to consider in order to determine whether you should have your vehicle financed or if you should lease. Consider these questions to help you decide on the right payment option:
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