September 21st, 2011

Cash, Loan, or Lease: Deciphering Car Talk

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**Today’s guest post is contributed by MoneyAisle.**

If life were like a car commercial, you’d walk into a dealership, point to the shiny new red sports car, and drive away. Sadly, life is not a car commercial. Buying a car includes deciding whether to take out a loan, sign up for a lease, or pay for your new vehicle with cash. All three options include details that you’ll want to carefully weigh and consider.

Which option is the right option for you? That depends on your current situation and the type of deal that’s offered. Before you step foot in that friendly car salesperson’s office, here are some things that you need to know.

Cold Hard Cash

Paying for a car with cash means foregoing any interest. It also means skipping monthly payments. Handing over a large amount of money in exchange for a car is always a good idea if this is an option. If you really want to live within your means, you can look for pre-owned cars that come with low price tags.

Another option is to obtain a personal loan in order to pay for a car. Asking a lender for a personal loan may be a good idea if the interest rate gained is low, and if you can pay back that loan quickly. You can also pay for a portion of a car purchase with cash while financing the rest of the purchase. Typically, the more cash you put towards a car, the faster you will be able to pay for that car in-full.

Leasing a Vehicle

Leasing a vehicle means that you will not own the vehicle you choose. Instead, you will have to make monthly payments in order to drive that vehicle. This rental-type agreement includes a low down-payment, but may end up costing a lot in the end. Some people purchase the leased vehicle at the finish of a lease term, while others return a car in exchange for another car once a lease has expired. Keep in mind that it’s usually more expensive to purchase a leased car at the end of a term than it is to buy a car from the start.

A lease may be the right choice if you do not drive very far on a regular basis. Car dealerships place mileage restrictions on leased vehicles, and going over this mileage cap may mean paying a good amount of extra money. Any damage done to a leased vehicle may also be your responsibility (depending on lease terms). It’s also important to read the terms of a lease (and fully understand those terms) before signing on the dotted line.

Opting for a Loan

The majority of people who purchase cars take out loans. Since buying a car with cash is expensive, loans are often the most appealing option. If you find a great interest rate, a loan can be a very good thing. You can make monthly payments that you can live with while working with your lender to come to an agreement. As with leasing, take the time to understand the loan terms that you will agree to. A good lender will explain every part of a loan contract to you. Once you have paid off a vehicle loan, the car you have been making payments towards will be yours.

MoneyAisle.com allows the once tedious undertaking of finding the best interest rate on loans to become efficient, simple, and organized by putting the entire experience in one online location where over 160 financial institutions bid for your business. Without any personal information required, consumers are empowered to find the best interest rate hassle-free.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

6 Comments

  1. Thanks this article was very informative, I wished I had the funds to pay for my car is cash instead I took out financing.

    freebies site at 4:18 pm on November 9, 2011
  2. The biggest advantage of leasing equipment is that the cost is spread over a number of years; there is no need for you to pay the entire amount upfront.The blog is very informative.Thanks for sharing.

    Leasing Company at 2:36 am on November 15, 2011
  3. O need your help tp please help me repair my credit. its serioully not that badand I do own a home and pay 2000 a monthy payments since the death of my dear husband. Withoiy credit their is nothing I can buy or do and I beleive this can be taken care of easo;y. I dont have a car loan thats deliquient. My boyfriend maks the payment and I have never ever have had nor shopped a old navy, Do ypu folls jelp woth prpaor or is it something I need to do zzzzzzmay God Bless you. I am Sincerey yours vicky

    vicky at 10:08 pm on April 29, 2013
  4. Jenna

    Hi Vicky! We’d recommend asking your question to our Advice and Learning Center. There are lots of friendly and knowledgeable Credit Karma members who can help you out!

    Jenna at 4:06 pm on April 30, 2013
  5. Hi,
    I am in the process of trying to fix my credit, but also need a car and my father has offered to co-sign to either lease or purchase, so that 1. I can possible fix my credit a litle quiecker and 2. get a vehicle, but i am unsure if this is a smart idea for me to do.
    thank you

    JOANNE at 12:59 pm on May 15, 2014
  6. Mike

    Hi Joanne – This sounds like a great question for our advice section (https://www.creditkarma.com/all/advice). Please feel free to ask your question over there to see if anyone can help you out. Thanks!

    Mike at 2:07 pm on May 15, 2014

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