Why You Should Finance Your New or Used Car

When purchasing a new car, you generally have 3 payment options: financing, leasing and paying in cash. Financing is the most common option because it is generally the most practical, in a financial sense.

Paying in Cash

Paying in cash may eliminate monthly payments and interest costs, but it also takes a large portion of savings, and it may leave you in a financially constricted situation.

Leasing a Car

Leasing a car is essentially renting a car. You make monthly payments on the vehicle, but you never really own the vehicle. Car leases are contracted through a specific period of time and can be obtained through banks, credit unions and auto dealers.  The monthly payments you make when you lease a car will be much lower than if you were to purchase a vehicle however, there are some major downsides to leasing, including the following:

• More expensive in the long run: When the lease contract is up you either have to lease a new car or purchase one.  When you finance a vehicle you will be payment-free after you pay off the loans. 
• Limited Mileage: A car’s mileage affects the resale value, and as a result leases have an annual mileage limit, approximately 10,000 to 15,000 miles per year.  If you exceed the annual mileage limit you will have to pay a hefty penalty.
• Higher Cost of Insurance: If your leased car is stolen or in an accident, basic insurance will not likely cover the whole cost of the vehicle, and you will be stuck paying out of pocket. To avoid this, GAP insurance is highly recommended. An expense you wouldn’t need if you purchased your vehicle through financing.

Financing Your Car

The best option for a majority of all Americans is to finance your vehicle.  It makes the most financial sense. Different from a lease, once you have completed all your monthly payments over a specific period of time, you own the car permanently.  

The great thing about financing a car is that you have many options for finding the payment plan that works best for you.  You can choose the term of your lease, which is the period of time you will be making monthly payments.  Keep in mind that a longer term may mean lower monthly payments, but will result in a higher total cost. 

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