By Colin Bird
You’ve found the right car for your needs and your budget; now it’s time to find the right way to pay for it. Should I buy or lease a car? According to CNW Marketing Research, 70.5 percent of people finance their cars; the rest lease (18.5 percent) or pay up front with cash (11 percent).
Each method has advantages and disadvantages, and the recent financial turmoil on Wall Street has complicated things. Ultimately, though, choosing the right way to pay for your car depends on the type of car you’re getting, how long you want to own it, how much cash you have and your credit score.
According to ALG, if your credit score is fair to poor you may find it “difficult if not impossible” to find a lease. In the past few years, leasing has become a smaller part of the financial landscape; according to Automotive News, at the start of 2008 leasing comprised 31.2 percent of luxury vehicle sales and 18.7 percent of non-luxury sales. By the end of the year it made up only 18.5 percent of luxury vehicle sales and 9.2 percent of non-luxury sales. In 2010, leasing started to pick up again as credit markets have loosened.
- Paying in cash eliminates the costs of interest and finance fees, said LendingTree.com spokeswoman Allison Vail. When you purchase a car with cash, you can do whatever you like with it for as long as you’d like — something that’ll make lessees envious.
- Michael Rubin, financial expert and author of the book “Beyond Paycheck to Paycheck,” said paying cash will make it easier to sell your car if and when you choose to do so. When you get a car loan, the bank holds the title, which can complicate the selling process if you want to change cars before you’ve finished paying yours off.
- Rubin also pointed out that having no payments to make means no impact on your monthly budget. There are, however, issues with a cash buyout.
- Leasing is like renting an apartment: Your monthly payments give you rights to drive the car, just as rent gets you a place to live. Vehicle leasing is available through banks, credit unions, finance companies and automakers.
- With a lease, your car will likely always be under warranty, so any nasty mechanical problems will be covered. Also, according to the Federal Reserve Board, monthly lease payments are usually cheaper than financing.
- In addition, lease payments can be deducted from your taxes if you use your car for business more than 50 percent of the time, according to Allstate Leasing. There are also tax deductions for financing a business vehicle, but they’re not as great as lease deductions, especially for more expensive vehicles. That’s because you can deduct a certain percentage of your lease payments no matter how high those payments are, according to Allstate Leasing. Financing deductions have set limits.
- Most Americans choose to pay for their car through financing. Like leasing, financing is available through credit unions, automakers, banks and financial companies.
- …the great thing about financing is that you’re using some else’s money to pay for your car, freeing up liquidity to buy other big-ticket items. Unlike a lease, once your loan agreement matures, you own the car for good.
- There are even some impressive loan deals out there — typically from automakers and their financing arms — that can make financing almost the same as paying with cash.
- “Zero percent APR and no-money-down financing is impressive and can’t be found anywhere else in the retail marketplace,” Rubin said.
Of course, the availability of attractive loans depends on your credit rating; according to CNW Marketing Research, today’s average borrower has a credit score of 710, which is relatively high.