There are a lot of important decisions to make when buying a car: Will it be a four-door sedan or an SUV? What automotive brand do you prefer (We’re partial to Nissan, of course)? What types of options will you choose? And how much of a monthly payment do you want? But one of the most important decisions you will make is how you will finance your vehicle purchase. Unless you plan to pay cash, the two most common forms of financing are leasing and a straight loan, either from a finance company or a bank.
Of course, whether you choose to lease or buy will be based on a number of factors, such as your credit, your driving habits, and your lifestyle. Here at Melloy Nissan, we want to help make that decision a little easier by explaining the differences between leasing and purchasing.
The Benefits of Leasing
When purchasing a car, you finance the agreed-upon purchase price by taking out a loan for a certain amount of time at a specific interest rate. But with a lease, you are actually paying the difference between the car’s sticker price and what the value of it will be at the conclusion of the lease. Here’s an example: Let’s say that the MSRP of your new car is $25,000 and you decide on a three-year lease. We’ll assume that the theoretical residual value of your vehicle is 60% of the original purchase price. That means this particular vehicle would be worth around $15,000 at the end of the lease. Your monthly payments would therefore be calculated on the remaining $10,000 instead of the full $25,000. What this means is that you may be able to buy a lot more car for the money.
Your monthly payments will also be affected by how much cash you are willing to put down, just like a purchase. You can also take advantage of special promotions which sometimes offer $0 down and $0 due at lease signing. However, these offers could result in a higher monthly payment. Sometimes, dealers require a large amount of money up front, which will lower your payments in the long run. You usually need excellent credit to qualify for a lease.
What you expect out of your vehicle and how it fits your lifestyle are other important factors. For instance, if the car’s warranty is an issue, most manufacturer warranties will cover you for three years or 36,000 miles bumper-to-bumper. If you opt for a three-year lease, which is the most common, you shouldn’t have to worry about any major repairs. However, you are still responsible for all routine maintenance, such as oil changes, as specified in your owner’s manual.
If you are someone who enjoys getting the newest vehicle with all the latest bells and whistles every couple of years, then leasing may be for you. And, if you don’t want to bother with trading your car in and dealing with such things as trade-in value, you can drop the car off at the end of the lease and get another one. If you decide to keep your car, you can refinance the balance owed instead.
While there are many benefits to leasing, there are some drawbacks. Take mileage, for example. Depending on how much or how little you drive will determine whether or not you will stay at or under the lease’s mileage restrictions, which can range anywhere from 9,000 to 15,000 miles per year. Exceed your mileage cap and you’ll be hit with overage fees on a per-mile basis.
Equity can also be a negative for some people. When you buy a car, you build equity in it just like you would a house. However with a lease, you are essentially “renting” the car, so therefore you aren’t building any equity at all; again, much like renting a house.
Benefits to Buying
Some people really fall in love with their cars and you may be one of them. If that’s the case, then you may prefer buying your car instead of leasing it. Once you pay your car off, you own it outright. Not only will you be saving on the monthly payments, but you won’t have to worry about mileage restrictions, either. Plus, if you like to customize your vehicle, you’ll be able to do so without worrying about returning the car to the dealership in its original condition, minus normal wear and tear.
One of the major drawbacks of buying a car is what it will be worth when it comes time to trade it in. Of course if you choose to keep the car, this is not an issue. But it is if you use your car as a trade in and owe more than it’s worth. This is called being “upside down” and may result in you having to come up with additional funds to cover the difference. Or you could negotiate to roll the negative equity of your old car into a new car loan.
Although it’s generally harder to qualify for a lease, oftentimes with car loans you’ll be required to put more money down. As a rule of thumb, some banks or lending institutions want from between 10% and 20% of the purchase price as a down payment. And, depending on your creditworthiness, you may wind up paying a higher interest rate, which will affect both your monthly payment and ultimately how much you’ll actually be paying for the vehicle at the end of the loan.
These are just some of the things that will affect whether you decide to lease or to buy. Think about your budget, driving habits, lifestyle, and your credit rating. Just remember that, ultimately, the choice is yours.
Helping You to Make the Right Financing Choice
At Melloy Nissan, an Edmunds.com 2014 Five-Star Dealership Award winner, we’re committed to helping you purchase the right vehicle that fits both your budget and your needs. We’ll help make your financing decision easy and hassle-free, by providing you with all of the options available to you. We’re experts at getting you into a car you can afford. Even if you have credit issues, we can get you financed when other dealers can’t.
Stop by our Albuquerque Nissan dealership at 7707 Lomas Blvd. N.E., and check out our huge selection of new 2015 Nissans, like the roomy 2015 Nissan Sentra, the versatile 2015 Nissan Rogue, and the stylish 2015 Nissan Murano. Save even more on our extensive inventory of certified pre-owned Nissans, as well as other quality pre-owned vehicles. To schedule a test drive, or to request more information, call 888-599-8669.