Pros and Cons of Auto Leasing
Advocates of leasing cars vs. buying them point to that when you purchase a car,
it depreciates the moment you drive it off the lot. On the other hand, when you
lease a car, you only pay for the expected depreciation amount. For that reason,
leasing a car sometimes makes more sense than committing to buying it.
Leasing a car basically means that you are paying to use the car for a certain period
of time usually 36 or 39 months . You car lease is traditionally issued by a bank
or credit union that the selling dealer uses.
Once the car is leased to you, you begin making monthly payments. The payments are
calculated by estimating the amount of depreciation the car will experience during
the time period that you have it. Say, for example, that you lease a $30,000 car
and the bank estimates that the car will be worth $20,000 after it is finished being
leased to you. In that example, your monthly payments will be directed at paying
that $10,000 dollar difference.
If you were to purchase the same car upfront for $30,000, the moment you drive it
off the lot it is worth much less. Cars depreciate at the same rate no matter whether
they are purchased or leased. Therefore, if you aren't concerned with eventually
owning the car, leasing is almost always the better deal in terms of paying a lower
In addition to the depreciation, other charges are factored in when calculating
the monthly payment. The biggest such charge is the lease factor or leasing rate
, which is a varying percentage based mostly on your credit score. Other smaller
charges of a leased car include tax and licensing fees. Down the line, you may also
have to pay if you go over the allotted amount of miles or if the car is damaged.
And of course, almost all leasing agreements require that car insurance with higher
limits (100/300/50) be kept current on the vehicle.
At the end of the leasing agreement, you will likely be given an opportunity to
purchase the car. You will pay the lease end purchase price + a documentation fee
(usually between $150 to $350) + taxes and registration.
Advantages of Balloon Auto Financing
Balloon auto financing is really a loan that combines the best features of leasing
and conventional auto financing. Similar to a lease, balloon auto financing offers
monthly payments that are significantly lower than those of traditional loans. In
contrast to a leasing , you actually own the vehicle with balloon auto financing
. Here is how it works: you make low monthly payments for a specified term (usually
2-5 years). After this term, you have several options. You can keep the car and
refinance the outstanding balance, keep the car and pay off the outstanding balance
in full, or sell or trade.
Benefits of Balloon Auto Financing
Balloon auto financing comes with some valuable benefits, including the following:
- 40% lower payments than a traditional car loan
- No mileage restrictions, depending on the lender
- No down payment or security deposit necessary
- 100% financing & flexible terms
- Choose to trade, sell, return, or refinance to own the car at anytime
- You own the vehicle and enjoy all the benefits of ownership
What Happens at the End of the Term
Once your low monthly payment term has expired, balloon auto financing gives you
the flexibility of several options. You can:
- Return the vehicle. You return the vehicle instead of paying the remaining
balance to own it.
- Sell the vehicle. At any point during your balloon auto financing loan, you
have the option to sell the vehicle. Once your term expires, you can still exercise
this option and pay off the remaining balance on the loan.
- Trade the vehicle in. You can trade the vehicle in and use the equity you've
built in it to get a new vehicle and help pay off the outstanding balance on your
balloon auto financing loan.
- Keep the car and refinance the remaining balance. You can always choose to
keep the car and refinance the remaining balance so you continue to have low monthly
- Keep the car and pay the balance in full. If you want to keep the car, you
can also make a lump-sum payment on the balance.