Buying vs leasing a car: What you need to know first

Leasing vs buying a car outright: What’s the better money move?

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Here’s what you need to know when you compare leasing and buying a car.

Cars are expensive. But the decision to lease a car or buy it outright depends on more than just cost. Consider how much you drive, your credit history and how much you wear and tear on a car. Read our guide to figure out what’s involved with both leasing and buying to find the option best for you.

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    What’s the difference between leasing and buying a car?

    It’s exciting to get a car, however it’s not always clear if buying or leasing a car would fit your lifestyle.

    Leasing a car

    When you lease a vehicle, you’re essentially borrowing it for a few years. Your contract allows you a predetermined number of miles each year — typically between 10,000 and 12,000. If you go over your allowed miles, you’ll likely be charged a penalty fee per mile. You can’t make any alterations on the car and the car has to remain in good condition. At the end of the lease, you’ll have the option of buying the car, starting a lease with a new vehicle or walking away completely.

    Buying a car

    When purchasing a vehicle, you can pay either completely outright or you can use a car loan. Most car loans use your car as collateral until your pay off your loan. But when you buy a car you don’t have to worry about milage restrictions, alterations or keeping your car in good condition.

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    Rates last updated May 27th, 2018

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    Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
    Name Product Product Description Min. Credit Score Term of Loan Requirements
    car.Loan.com Car Loans
    Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
    300
    Varies by lender
    Must be at least 18 years old, a US citizen with a current US address and employed full-time or have guaranteed fixed income.
    Auto Credit Express Car Loans
    Get connected with an auto lender near you, even if you have bad credit.
    300
    Typically 3 to 6 years
    Must be at least 18 years old and a current resident of the US or Canada. Must be employed full-time or have guaranteed fixed income of at least $1,500/month.
    myAutoloan.com Car Loans
    Get up to four offers in minutes through one simple application. Multiple financing types available including new cars, used cars and refinancing.
    550
    24 to 84 months
    Must be at least 18+ years old; have a Social Security number; make $24,000+/year; have no open bankruptcies.
    LendingTree Auto Loans
    Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.
    Good to excellent credit
    Typically 1 to 7 years
    Must be a US citizen and 18+ years old. Must have good to excellent credit.
    Capital One Auto Financing
    You could qualify for a car loan of up to $40,000, but not all dealers accept this bank's financing.
    Good to excellent credit
    36 to 72 months
    At least 18 years old, have a valid street address, have existing Capital One accounts in good standing. Car must be a 2006 model or newer with less than 120,000 miles.
    Wells Fargo Auto Loans
    Auto loans with high loan amounts to cover your car purchase or refinancing needs.
    Good to excellent credit
    1 to 6 years
    Your income and assets must support your existing debt obligations and the desired loan amount.

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    Not sure whether to buy or lease? Here are the pros and cons

    ProsCons
    Leasing
    • Gives you the option of upgrading your car at the end of the lease
    • Requires less upfront money
    • Dealership has a warranty
    • Often has lower monthly payments
    • No need to worry about selling the car
    • Limits the number of miles you can drive
    • Unable to make any alterations
    • Must be properly maintained to avoid “wear and tear” fees
    • You don’t have equity in the car
    • You’ll always pay monthly payments
    Buying
    • Whether you take out a car loan or buy the vehicle outright, you can still claim the car as your own asset
    • Drive as many miles as you like
    • You can customize your car as you like
    • Ultimately most cost effective
    • May cost more money upfront
    • The value of the car depreciates in time, making your investment less valuable
    • Car loan terms can be long, resulting in more interest
    • Responsible for repairs when the warranty expires

    What other financing options are available for cars?

    • Secured personal loan. A personal loan that is secured lets you use the car as collateral, giving you lower monthly payments. This presents less of a risk for the lender as they can sell the car should you default on the loan. These loans generally have lower rates and fees and are offered as a fixed or variable rate option.
    • Unsecured personal loan. An unsecured personal loan can be used to finance a vehicle — or anything else you want to buy. These loans are flexible but they usually come with higher fees and rates because it’s a risk to the lender.
    • Dealer finance. If you purchase a car from a dealership, they’ll most likely have a financing option to offer you. It’s best to do your research, as dealer financing usually comes with inflated rates and high fees.

    8 tips when deciding to buy or lease

    1. Driving more could cost more. Lease agreements usually allow you to drive a certain amount of miles annually, so consider your commute and any trips you’ll take with your car.
    2. Use your car as a down payment. If you own a car and are planning on purchasing a new one, you can typically trade it in to the dealership for a down payment on a new vehicle — or you could sell the car yourself.
    3. Tax deductions for business use. If your car is mainly used for business, you could write off both lease and car payments towards tax deductions.
    4. Good credit can get you better rates. If you have great credit, but not a lot of money for a new car, leasing a vehicle can get a you a better car for less money. With good credit you could get more affordable monthly payments than buying a car.
    5. Secured loans best for poor credit. If you have negative marks on your credit, consider a secured loan to buy a car. You’ll get lower rates and have a better chance of approval by taking out a loan using your car as collateral.
    6. Newer car for less money. If you like having the latest vehicle on the market, a lease allows you more flexibility to upgrade every few years. Sometimes you can trade in your older lease and get a newer model for the same monthly payments.
    7. Leases don’t allow car modifications. If you think you’ll add a new exhaust system or racing stripes to your new car, consider buying. Lease agreements restrict you from making any modifications, and will charge fees if you do so.
    8. Take care of your car. Lease agreements typically have a “wear and tear” clause that states the person leasing will be responsible for any damages that exceed average “wear and tear” — such as stains, dents, rips and scratched rims. So drivers that park on city streets, drive with dogs in the car or are generally tough on cars should consider buying a car.

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