Key Takeaways:
- With car financing, your monthly payments will usually be higher than with leasing since they pay off the total price of the car plus the markup on it.
- With leasing, you only pay for the car's depreciation, interest, and any fees during the lease term.
- If you must keep the car for many years, choose to get financing.
- Leasing doesn't require a good credit score.
- You have to put money down upfront in car financing.
- Leasing has a yearly mileage restriction.
When you lease or finance a new car, there are many things to consider. Which option is better for you depends on various factors, including your budget, driving habits, and car preferences. Mercedes-Benz Of South Orlando will discuss ten factors you should consider when deciding between car leasing or financing. By understanding each option's pros and cons, you can make the best decision for your individual needs!
Factors to Consider Before Choosing between Car Financing or Leasing
Like most people, you probably have a car payment each month. But what exactly are you paying for?
With a lease, you're essentially renting the car from the dealership for a set period, usually two to four years. And in terms of payment, you are returning the value of the depreciation the car goes through, plus taxes. You must either return the vehicle or purchase it outright at the end of your lease term.
With financing, on the other hand, you're taking out a loan to buy the car outright and will make monthly payments until the loan is paid off. If you are unable to maintain the payments, the car could get repossessed. The same thing happens in car leasing.
Here are the ten factors to consider before choosing between car financing or leasing.
1. Budget
One factor to consider when deciding whether to lease or finance a new car is your budget. Car leasing may be a better option if you have limited funds available each month since monthly payments are typically lower than financing. With leasing, you also won't have to worry about the car's value depreciating with time since you can return it to the dealership at the end of your lease term.
2. Length of Use
Another deciding factor is how long you plan on keeping the car. Are you planning to drive the car for a long time, or would you like to trade in every few years? If you only need it for a year or less, leasing may be a better option since you won't be stuck making payments on it for years to come. On the other hand, financing may be better if you keep the car for a long time since you'll eventually own it.
3. Mileage
You should also check how much driving you do each year. Most leases have mileage restrictions, typically between 12,000 and 15,000 miles per year. You'll need to pay a fee for each mile over the limit at the end of the lease if you cross over the limit.
With financing, there's no mileage restriction. So, if you only put a few thousand miles on your car each year, leasing may be better for you since you won't have to worry about excess mileage charges.
However, financing may be a better option if you drive a lot, so you don't get fined for exceeding your mileage limit.
4. Credit Score
You should consider your financial situation. You can have a lower interest rate in car financing with a good credit score. On the other hand, leasing may be a better option if you have bad credit that typically requires more down payment.
5. Maintenance
With car finance, you typically don't have to worry about maintenance and repairs since the warranty and insurance cover them. However, you'll be responsible for all maintenance, repairs, and wear and tear if you lease a car. When you return it at the end of the lease, you may have to pay a fee if there is substantial damage to the vehicle. However, you're not charged unless the damage is due to negligence on your part.
6. Upfront Costs
You'll usually have to make a down payment when you finance a car. The amount will depend on the car's price and your credit score. Leasing typically requires little to no money upfront, although there may be other fees, such as acquisition and disposition fees.
7. Flexibility
You can buy the car, trade it in for a new lease, or return it to the dealership at the end of a car lease. If you finance a vehicle, you own it outright and can do whatever you want with it once the loan is paid off.
Also, decide how essential it is for you to drive the latest automobile. Leasing is your best bet if you want to replace your car every two or three years for the newest model. However, buying may be a better option if you don't mind driving the same vehicle for six or eight years.
8. Total Cost to Pay
You're only paying for the car's depreciation during your lease term. When you finance a vehicle, however, you're responsible for the car's entire cost, including interest on your loan.
9. Resale Value
With leasing, you don't build any equity in the car. However, if you finance a vehicle, you can benefit from the increase in its resale value. Also, read our blog on certified pre-owned cars that are good for investors to find out which category of cars has better resale value.
10. Early Termination Fees
If you need to get out of your car lease early, you'll probably have to pay an early termination fee or no fee, depending on the terms and conditions you negotiated with your car dealership at the time of signing the contract. With a car loan, you can sell or trade your car anytime with a minor pre-payment penalty.
Regardless of the option you choose, do your research and compare offers from multiple dealerships before making a decision. You can ensure you're getting the best deal possible on your new car by taking the time to shop around for market comparison.
Need Car Financing or Leasing Services in Kissimmee, FL? No Problem!
These are just a few factors you should consider when deciding whether to lease or finance a new car. Talk to Mercedes-Benz Of South Orlando, serving Kissimmee, FL, about your options and make the best decision for your needs and budget. Browse our new Mercedes and pre-owned luxury vehicles to start searching for your next ride.
Contact our finance center to discuss car leasing or financing today!
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