Car Financing and Leasing Options
Financially-speaking, it can be daunting deciding between leasing or financing your car purchase. While buying involves higher monthly costs, once paid off you own the vehicle and can trade or sell it.
Leasing usually results in lower monthly payments; however, penalties apply if mileage limits are exceeded and too much wear-and-tear damage occurs.
Car leasing offers drivers who want to upgrade, but cannot afford traditional car loans an alternative route to driving their dream vehicle. While leasing may appear attractive at first, there may be potential drawbacks you should be mindful of before signing on the dotted line.
One important consideration in car leasing contracts is mileage. Your lease contract usually stipulates a yearly mileage limit that must not be exceeded; otherwise, additional charges will apply per mile over that limit.
Also consider single-pay lease options which require payment of both capital cost and money factor in one upfront payment, saving both money and making qualifying easier. This approach could save time when qualifying for lease financing.
Another thing to keep in mind when leasing is whether or not a credit check will be required. Financing a car with poor credit can be challenging, so banks may require that you purchase gap insurance as part of your lease agreement – an auto policy designed to cover the difference between its actual cash-value and value in case of accident or theft.
Leasing a car, known as Personal Contract Purchase (PCP) or hire purchase, involves paying both an initial deposit and regular monthly payments over the term of the agreement. Leases vary from other forms of finance in that they include depreciation costs as well as rent charges and taxes; it’s essential that when considering leasing over purchasing that all terms of your lease agreement are understood properly to make an accurate comparison between options.
People choose leasing cars for various reasons, including experiencing that new car smell or affording more expensive models than they could through financing alone. Furthermore, leasing deals may allow buyers access to financing they wouldn’t otherwise receive; and researching specific models you wish to lease using Kelley Blue Book and similar websites should provide valuable research resources for leasing options as well as any end-of-lease costs before making your final decision.
3. Lease Extensions
After your lease ends, it may be possible to extend it with the lessor; however, this usually incurs significant additional costs that should be avoided at all costs.
When opting for an extension lease, make sure you fully comprehend how its new terms impact your car leasing costs. Be mindful of what constitutes “financing costs”, unlike leasing costs which differ markedly – money factor and interest rate are used interchangeably; acquisition fee charges cannot be waived away as part of an extension deal.
Determine how many miles you plan to drive. Most lease agreements include a maximum mileage allowance; exceeding it could reduce trade-in or resale values of your car and incur an extra charge per mile driven. Also learn about a vehicle’s residual value which is established during lease signing and represents its estimated market value at lease-end.
Compare lease offers by reviewing their total cost and what is included, giving an idea of the monthly costs and upfront fees, such as sales tax, down payment and drive-off charges. Also compare allowable mileage penalties (if applicable) as well as how many miles are included annually within each lease agreement.
Leases may appear more costly at first glance, but their benefits often outweigh their initial price tag. For instance, new vehicles available through leasing usually include factory warranties with low monthly payments that include virtually no maintenance or repair expenses out-of-pocket. Furthermore, leasing allows you to switch vehicles every few years without the burden of selling or trading in old ones first.
Buyouts are an option at the end of your lease term that allow you to return the vehicle without incurring any end-of-lease charges and walk away, without building equity in it. To help determine whether this is suitable for you, Canadian Black Book’s Future Value calculator could prove invaluable in making the decision easier.