How should I finance my car – loan or lease?

Car industry is one of the most developed industries in the world. Automobiles have become a usual mean of transport for most of the people around the globe. The only problem is that they are quite costly and hard to afford. This is why a lot of people turn to getting loans, or getting a car on a lease. The two mentioned options are very different and there are numerous reasons why people choose each of them. We will go through all of the differences between these car financing options.

Loan

This is the lump sum that you acquire from a bank or a lender used to purchase your car. You are obliged to repay the money within one up to five years. Services like these cost, which is why the interest rate that you pay additionally when returning the money exists. You can always contact several banks and compare the interest rates and other options in order to get the best deal for your budget.

Lease

When you lease a car you pay for its usage over the extended period of time. Before you start leasing the car, leasing company decides the residual value of the car three year from that point and your obligation is to pay for that cost difference. When the contract runs out you can either purchase the car for its residual value or simply walk away from the vehicle.

What are the basic differences?

When you are getting a loan for your car, this means that you intend to purchase it and after the loan repayment is over, you are the complete owner of the car. Monthly installments for loan repayment are much higher than leasing monthly installments. If you are leasing a car, it does not necessarily mean that you are planning to purchase the vehicle, you are basically renting it for a three year period of time with certain rules, such as limited annual mileage.

Why should I finance with a loan?

First of the reasons is that after the final installment, the car is officially your property forever. While it may cost more than leasing, at least you get to keep the car, while people who are leasing walk away from it leaving behind numerous bills and no car. After the final payment, there are no more fees on your car, ever. All you have to do is pour some gas and drive as much as you like. There are no mileage limitations when financing a car through loan. Even damaging your car is not as bad as when leasing, because, beside the compensation for the damage done, with leasing you would be penalized and that would cause additional expenses. These are the reasons why you should go for financing a car through a loan.

Why should I lease my car?

Most people would find leasing a car a financial loss, and it may be so, but on the other hand there are those who can afford this kind of financing without damaging their budget. There are some advantages that leasing gives. Monthly installments are usually much lower than monthly installments for a car loan. You are always driving a new car and by doing that it is very unlikely to have any serious maintenance expense, even if something goes wrong with the car, it is always under warrant. Some leasing companies don’t even require down payment upon contract closing. After all, who knows what might happen, you may purchase the leased vehicle after the contract is finished and you have paid the last installment. There are numerous options open and it is possible to continue leasing after the contract runs out.
 
After revising the differences it is easy to make a decision. You should aim for your goals. If you want to obtain a car and make it your own property financing it through a loan is the way to go. If you always want to follow trends and have a nice style with a new car every three-four years, the best option for you is definitely leasing. You should know what you are aiming at and use your budget in the way that will get you the most benefits. Whichever of the car financing methods you choose, you will achieve your purpose of having a brand new car upon creating the contract with either a leasing or a lending partner.

Saving money on a car loan

Buying a car can be a great thing. That feeling of self-satisfaction, fulfillment and accomplishment when you get in your new set of wheels, grabbing the steering wheel and roaming off on the open road. But right before you step on the pedal, alarm starts ringing, you wake up and reality hits you like a moving truck. Being that car purchase is one of the largest life expenses, you cannot let yourself be hasty. There are various ways you can save up money on your car credit. Banks, as well as other financial institutions, are practically fighting over to give you money. This way more and more car loans are approved. This provides the possibility for a great number of people to buy themselves a new set of wheels. But don’t be fooled. Many banks are offering instant cash credits, for which interest rates are higher than for the credits that are 
meant for buying car (a car loan).

 
Have you recently noticed people around you in new cars? Have you, at some point, listened to their discussion on the purchase? That is a good place to start. Any piece of information you gather can only help you with your decisions. If you cannot gather enough money in such a short notice for a car purchase, you should consider borrowing it. There are assertive guidelines which will help you save money on your loan. Persistence, planning and price comparison are needed if you are aiming for the best deals.

Do your credit check!

You should run your credit check before trying to swim in the seas of administrative paperwork. This will give you a glimpse of your credit capabilities. If it turns out right, you will have no problem in negotiating better interest rates. However, if your budget is burdened with various loans, car loan, bike or boat loan, house loan, stacks of unpaid bills or any other credit, then be sure that the lender will set his interest rates high. Primary object is to save money, so you should always keep that in mind.

Pay your bills on time!

Make sure you pay your bills on time, if you want to avoid negative points in your credit report. It is of great importance that you repay all your debts in time. If you do so for several months (three to six months will be advisable), it will surely prove to be a positive thing on your credit score. Some unused savings on your account or on several accounts will greatly improve your credit score. Keep in mind that credit score dictates the interest rate on your loan.

Keep your loan realistic!

There are more ways to save your money on car loans. Having a sizable down payment is one of them. The lower the loan is, the lower the interest rates will be. It’s good to have your feet on the ground. Borrow the amount you actually NEED for buying a car so your car loan may be preapproved with low interest rate. This way you are avoiding surprises at the end of the month. Excess of money you get increases the monthly payment as well as the interest rate.

Check more financial institutions and do a comparison!

There are numerous financial institutions which you can lend money from, such as banks, credit unions etc. But these days you can find great deals and low interest rates with the online lenders. Take your time to check as many lending options as you can and compare their offers. Keep that in mind and you will find the best deals which can save you money. Patience is your friend here.

Be wary of the car dealers!

Almost every car dealership is offering to arrange a car loan for you, but this is the last thing you should consider. Not that many car dealers can offer you a good arrangement. Nevertheless some of them are followed by a good reputation, customer satisfaction and words of grace. If you chose to buy a car at the car dealership, make sure you bypass the add-ons, such as car and life insurance, disability insurance and such as well as  the car add-ons such as car stereo, window tinting, alarm installment, leather seats, pin-stripes. These things can increase your car loan and with it, your monthly payment and interest rate.

If it is in your best interest to save money while buying a car, you should keep these tips in mind. There is no un-useful information. And remember…patience, planning and price comparison, these three are your friend.

Loans for vehicles

Everybody who has a job and a family should also have a means of transportation. Of course, one can always use the public transport of his city, but having a car or a motor bike at your disposal whenever you want is always a preferable option. This, however, has its common drawback, and that is finance. Not many are able to just take out the cash and buy a vehicle on the spot, especially if they have an average monthly income and that is why people usually loan the money in order to purchase a vehicle. Loaning the money for a purchase of any sort carries that well known burden of “Interest debt”. However, in return, you are not paying for your item right away; actually you pay a smaller amount of money weekly or monthly depending on your income. There are specified car loans for this purposes like for example “Short Term Auto Loans” and “Long Term Auto Loans”.  

Short Term Auto Loans

These loans designed for the purchase of a new or used car and have payment terms of 12 up to 36 months and, as its name states; it has a shorter amount of time with lower interest rate for paying for your vehicle and getting that problem off your back. On the other hand you should not expect these monthly payments to be small. In other words, a customer with a bad credit rating may not find this option preferable to him or her since in that case the interest rate can be higher in order for them to have this kind of loan approved by the lender. A person with a good credit scores may opt for this loan, since his interest rate will be lower.

Long Term Auto Loans

These loans have payment terms longer than 36 months up to about 84 months and individual monthly payments are significantly smaller. The drawback of this option is that interest rate increases immensely and one will end up paying for a car a lot more than its original price.

There are other options to have a vehicle at your disposal for example “leasing” and this option will lend a weaker blow to financial situation. How does this work actually- what you need to do is find a financial institution that will lend you money for the car purchase and, after that, you repay the money that you have borrowed from that institution in monthly payments which are not as high as the ones that you would pay in the case of Auto Loans. The main difference in this case is that you are not the owner of the vehicle; instead you are a person who rents it from the lender since the financial institution which paid for it is the owner. Despite the ownership twist, this option has a lot of advantages:

1.       1. You get to use the vehicle during its best years.
2.       2. You do not have to worry about the increase when it comes to the interest rate.
3.     3. There is an option in which case you can pay more money in advance in order to decrease monthly installments.
4.       4. There are no additional payments after the agreement with financial institution has been reached.
5.       5. If you are satisfied with your vehicle there is an option of prolonged leasing period.
6.  

This can be a very good deal if one is not ready or does not have a luxury of affording a great cut-back in his or her budget to provide his or her family with a means of transportation.
 

There is another interesting way of buying a car or a motorbike it is called Residual Value or Balloon payment. It allows you to pay back the money that you have loaned for the vehicle in monthly payments that can be different and the amount of money that you pay monthly is all up to you under the condition that the amount of money that you promised to pay back over designated time remains the same. So if you borrow, for example, $40.000 and have 25% interest your total debt would be $50000. If your contract states that you need to repay this money in 5 years your monthly or weekly payments depend on you as long as you pay the full amount in 5 years time. This agreement reacquires some special conditions so it is not possible for everyone to make this kind of payment.