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 monthly payment.

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 payments.
  • 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.





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