Which is best for you?
Buying a new vehicle comes with so many questions! How big of a vehicle to you need? What brand (Ford!) should you use? Should you purchase gasoline, diesel, electric, or a hybrid vehicle? What extras will you need? Will you pay with cash, finance, or lease the vehicle? Most of these decisions come down to you and your lifestyle and can only be answered by you. However, at Johnson Sewell Ford Lincoln in Marble Falls, TX, we want to make sure that when you are ready to make the decision to buy a new vehicle, you will understand your financing options. We will try and demystify some of the misunderstandings that can occur when purchasing your vehicle and shine some light on the pros and cons of each choice.
Purchase outright
Most of us don’t enough money saved up to pay cash to completely purchase a vehicle and drive it off the lot. While we need to consider leasing or financing, the rest need to be aware of the benefits and drawbacks of paying cash for their new vehicle.
| Pros | Cons |
| You own your vehicle immediately! | Assets are no longer available |
| There is no interest or monthly payment! | You are fully responsible for maintenance |
| You can drive as many miles as you want! | Repair costs can be high |
Leasing
Leasing a vehicle is a lot like leasing an apartment. You agree to use it for a certain amount of time, the cost per month is usually less than a mortgage payment, some of the maintenance is covered by the leasing agreement, and the assets need to be returned as close to the original condition as possible. This is a basic understanding to how a lease with a car works.
Leasing a vehicle also opens other possibilities. You can afford a vehicle that normally might not be in your price range, the down payment for leasing is usually lower than financing, and some dealerships offer benefits such as warranties and routine maintenance. When the lease is up, some dealerships will allow you to use another vehicle or you can purchase the vehicle, sometimes for less than its current market value.
One thing that many people don’t understand is how the downpayment and monthly payments can be so much less than a financed vehicle. This difference can be found when you look at the life of the lease as a percentage of the life of the vehicle and the depreciation that occurs during this time. So, the monthly payment on a lease is lower because you are not paying for the entire life of the car, only for the first couple of years that you drive it, when it has depreciated the most. The loss caused by depreciation is factored into the monthly payment and is paid for by the consumer.
| Pros | Cons |
| You drive the vehicle during its most dependable years | You usually spend more on the lease since you are paying during the time of greatest depreciation |
| Your vehicle is always the latest model and covered under warranty | If you continue to lease new vehicles when the current lease ends, your monthly payments could never end |
| You can afford to drive higher priced vehicles with the latest safety features | You are limited to a number of miles per year, and penalized if you go over that number |
| You don’t have to worry about the hassle of trading in the vehicle when the lease is up | You have to pay the cost for excess wear and tear when the lease is up |
Financing
While it sounds like leasing a new car is a great deal, there is a lot to be said for financing your new vehicle as well.
One of the main benefits of financing is you get to choose whether to use a direct lender, such as your bank or credit union, or go through dealer financing. Using a direct lender allows you to be pre-approved for a certain amount before you even go to look at cars. You will also know the annual percentage rate, the duration of the loan, and the total amount of money available to you. Dealer financing is usually offered at the time of purchase, allow the dealer to finance an amount that could be higher than the pre-approved amount, and to offer any incentive programs that are given by the manufacturer. The dealer financing can sometimes be up to 1.5% lower than other lending institutions.
Financing your vehicle allows greater freedom than is available through leasing. You can many any modifications to the vehicle you like. You are not limited to the number of miles that you can drive. As soon as your loan is fully repaid, the rest of the value after the depreciation is yours to use on another vehicle when you are ready.
| Pros | Cons |
| You can shop around for the best rate for your financing | Your vehicle depreciates between 15 to 25% in the first five years |
| You own the vehicle and its worth when the loan has been fully paid | You pay higher monthly payments and the costs for repairs |
| You can drive as many miles as you want for as long as you want | You need to pay a higher down payment than that of a lease |
Conclusion
Ultimately, the decision regarding the financing of your vehicle is in your hands. You might want to swap out vehicles every four to five years and have low monthly payments, making the idea of a lease look appealing. Or you may not want to pay a never-ending supply of monthly payments and modify your vehicle how you want, in which case financing might be a better decision. Whatever the case, the Johnson Sewell Ford Lincoln team will work with you to try and get you the best deal possible for your needs.
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