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.
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