Auto Leasing Vs. Buying: What is the difference?
Deciding whether to get an auto lease or to buy a vehicle is often a tough call. On the one hand, buying involves higher monthly costs, but you own your vehicle. On the other, a lease has lower monthly payments and lets you drive a vehicle that may be more expensive than you could afford to buy. Also, you may get caught in a cycle where you never stop paying for a vehicle and have a car payment for a long, long time. Ask yourself some honest questions… What situation is more affordable to you? If you buy, would you keep the car after the loan is done? Perhaps, can you choose a less expensive vehicle?
What If I Want to Buy a Vehicle?
If you decide to purchase a vehicle, you will either need to apply for a loan or use cash to make your purchase. Typically, your monthly payment may be higher than leasing. You can sell or trade in the vehicle when you want to purchase a new one at any time (although we suggest paying off the loan on the vehicle before purchasing another vehicle so you do not fall into the negative equity trap). Additionally, you assume the risk of depreciation to your vehicle in regards to what it will be worth when you decide to sell or trade it in. You can drive as many miles as you want. A typical auto loan term is 5 to 6 years. You own the vehicle and get to keep it at the end of the financing term. If you are interested in purchasing a vehicle, visit us at any location or apply for a loan.
What is an Auto Lease?
Monthly payments may be lower than purchasing a vehicle. Overall, the car payments you make include the depreciation cost of the vehicle, an additional rent or usage charge, and other fees. If you end the lease early, you may be responsible for early termination charges. These fees can be very expensive. You will not be able to simply return the vehicle and stop making payments.
You can either turn the vehicle in and pay any end-of-lease fees at the end of your lease term. Additionally, you have the option to purchase the vehicle if your lease includes a purchase option. For most leases, the company or person leasing the vehicle to you assumes the risk of depreciation. Also, most leased vehicles include mileage restrictions of 10,000-15,000 miles per year. When the lease is completed, most leases also include fees for excessive mileage as well as for wear and tear. Typically, a lease is 2-4 years. Overall, If you decide to lease, you can and should negotiate the lease terms. You can compare different lease offers with the goal of negotiating terms such as the Cost of the Vehicle, Amount of any Down Payment, Rent Charge, Mileage Limits, and Purchase Options.
Heads up on Auto Leases!
Some dealers lease older, used vehicles. Usually, these dealerships lease to individuals with bad credit. Features of this type of lease shortened pay periods, high rent charges, and no repair or maintenance coverage. Unfortunately, if the vehicle breaks down, you may be responsible for repairs. Before leasing any vehicle, determine if you will be able to afford the payments in the future and if this is the right deal for you. You should also ask if the vehicle will be equipped with a starter interrupt device that will shut down the ignition if you miss a lease payment.
For more information concerning how an auto lease works, visit CFPB Consumer Laws & Regulations. Consumer Financial Protection Bureau (CFPB) is a U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly.
CONSIDERING BUYING OR LEASE A CAR?
If you need to borrow money, we can help you. If you’re still not sure whether a loan is a right option for you, call us at 808.73.PHFCU (737.4328) or visit one of our locations on Oahu (Waipio, Waianae, Ewa Beach, Honolulu, Airport, and Pearl Harbor). Our team is ready to look at your financial situation and recommend the best option for you. You can also apply online to get started…