Blog @WellesleyToyota

When to Buy, Lease, or Finance a Vehicle

Posted by Jared Katsoupis on Mon, May 19, 2014 @ 08:00 AM

financing

When deciding how to pay for a new vehicle, you have a few choices. But how do you know which one is right for you? Can you pay in cash? Perhaps leasing for the short term is your best bet. Or go with financing if you don’t want to pay all up front. Either way, you have options and we’ll take a look at which one is right for you.

Cash

Cash is the simplest way to pay for a vehicle since you are able to avoid dealing with bank loans, credit scores, and monthly payments. It puts you in better control of your negotiation and gives you more freedom to sell your vehicle whenever you choose. If you have car loans to pay off, then you don’t outright own your car making it more difficult to sell.

You are also paying less money overall since you avoid monthly payments and potential interest that would otherwise cost you more in the long term. 

The negative side to paying in cash is the large sum of money that you pay upfront. That money is money that you have earned and could be saved for a rainy day or emergency, something to think about. Can you afford to pay in cash just because you have that exact amount saved? Do you have other obligations and payments that eat away at your income? If so, perhaps you should look at leasing or financing.

Leasing

Leasing is essentially renting a car for a period of time, usually two or three years, and then returning it once your leasing period is up. Leasing is a good idea for those who do not want to make a long term commitment to one car. You can lease a vehicle a number of ways through banks, credit unions, and finance companies, but the most common way is through your dealership and the manfacturer.

The perks of leasing range from being covered under warranty should anything go wrong with your vehicle to cheaper monthly payments than buying a car with monthly payments. On top of that, if you use your vehicle for business purposes, often times you can deduct your lease payments from your taxes, something to think about if you run a business. You also have options regarding a downpayment. If you opt for a higher downpayment, your subsequent monthly payments will be lowered, and vice versa.

The negative side of leasing is that there is a set amount of miles per year that you are allowed to drive, agreed upon when you sign the lease. Limits are generally set at 12,000 or 15,000 miles per year, and depending on how you drive, these should be plenty as long as you plan ahead. If you do go over your mileage limit, you may be subject to fees per mile over your limit. You are also covered under basic wear and tear, however, if you manage to significantly damane the vehicle, you would have to pay to repair the vehicle, as well as possible fees for excessive wear and tear. 

Financing

Financing works a lot like leasing, but once you have made all of your payments, you then own your vehicle outright. The easiest way to finance is having your dealership coordinate with the manufacturer (such as Toyota Financial Services), or other banks and credit unions. If you qualify for zero percent financing, then financing essentially becomes paying cash in monthly installments, and it does not cost you anything more! Financing can also offer longer loan periods in order to bring down your monthly payments to make them easier on your wallet.

Toyota Financial ServicesThe tricky part about financing that many people run into is that you need to have a good credit rating in order to get the best financing terms from your lender. If you have any existing car loans to pay while looking for a new one, you will want to pay off that loan or else it may be difficult to get another loan.

Financing also generally requires a fairly steep down payment, usually around 10-15 percent of your vehicle's cost. Again, the higher the downpayment, the lower your monthly payments. If you do not think you have the resources to make a down payment in that range, then leasing may be more beneficial for you, however, you will not own your car at the end of your lease like you would through financing. 

Bottom Line

If you can afford to pay for a car, buying outright may be your best option as it gives you the most freedom to do what you wish with the car whether that's adding on to it or selling it at your leisure.

Leasing is great if you do not want to make a long term commitment to a car since you only pay a monthly fee and then return it for something new.

If you wish to own a vehicle and make monthly payments on it, then financing through a bank, credit union, or the dealership may benefit you depending on your credit score and the loan you receive.

All of these options are available at Wellesley Toyota should you be considering a new car. We will work with you to find the payment option that best suits your lifestyle.

Visit us at Wellesley Toyota off Route 9 in Wellesley. Or, get in touch with us at www.WellesleyToyota.com or 888-577-6342.

Topics: Buying, Wellesley Toyota, Lease, Cash, Financing