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Borrow or Lease?

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Apples and Oranges. Very different from one another, yet each makes a great snack. Car loans and leases. Both will allow you to get a new car with monthly payments. But each have their own distinct advantages and differences that may or may not be right for you. In your search for a new car, it makes sense to consider both before making a final decision.

Buying your Car with a Loan

The only way you'll ever own your car is if you buy it. And with car prices creeping higher and higher, most people can't plunk down the full purchase price of a car, so they take out a loan instead. When you borrow money, the institution you get the loan from owns the car until you pay it off. As you make payments on the car, you're building equity in it until it's totally yours at the end of the loan. Throughout the term of the loan, you are free to put on as many miles and make any modifications you want to the car. Excess wear and tear is not a concern when you take out a loan (except at trade-in time!) since you'll own it when the loan is done. What's more, when the loan is paid off, the car is yours to keep with only insurance and maintenance expenses to think about. Sound like a good deal? It is -- to the right person. You'd probably be better off taking a loan on your new car if you...

  • Would rather own your car at the end of the term
  • Average more than 12,000-15,000 miles per yea
  • Use your car under extreme conditions
  • Tend to keep your car for several years
  • Are not overly concerned with driving a new car on a regular basis
  • Prefer to pay less on your car in the long run.

Leasing Your Car

Car payments for many are a way of life. As soon as you get one car paid off, or even before, another one catches your eye and the payments return. If this is you, a lease might make sense. With a lease, you are basically renting a car long term and making payments based on the depreciation cost of the car. That usually means lower monthly payments. You can drive a car in your price range for less, or move up to a more expensive vehicle for the same amount as a loan payment on a less expensive car. Some very attractive lease rates are out there, often subsidized by the auto manufacturers themselves. Popular models - or models that hold their value - tend to be a better deal since they depreciate less during the lease period.

Along with your lease will come some restrictions. Mileage usually ranges between 10,000 and 15,000 miles per year, with charges per extra mile. "Excess wear and tear" can take a bite, and dealers can be picky - especially when you're just turning the car in and going elsewhere for your next car. Finally, leases can be very complicated and wind up costing you more than you thought -- so lease with care.

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