Is it better to lease or finance my next vehicle?

With today's slowing economy there are numerous promotions coming from the vehicle's manufacturers, if you are in the market for a new car you may want to take advantage of these generous offers before the inventory is depleted. Before you sign on the dotted line you should understand some of the pros and cons when it comes to lease or finance your next vehicle. Here we will begin with the lease option first:

What is a lease on a vehicle – a lease is essentially a long term rental, the monthly payment you are making equates to the depreciation of the vehicle over time. "Buy out" or residual value on the vehicle is the predicted resale value in 24, 36 or 48 months.

Pros:

-         Lease is generally cheaper in monthly payment because of the residual value will be paid separately which is not calculated within your monthly payment. Lease offers better cash flow, or cheaper monthly payment therefore increasing the affordability.

-         You can claim the lease as your business expense if you have your own business registered.

-         If you don't want to deal with any vehicle repairs lease is the best option, since majority of lease programs fall within the manufacturer's warranty period, leaving you with hassle free driving for years.

-         If you can't make up your mind about a vehicle, lease is a great way to really try out the vehicle for the 3 or 4 years term, and the ultimate decision to buy out the car is still in your hands.

Cons:

-         You don't actually have any equity in the vehicle, since you are paying the depreciation on the vehicle there is no real equity by the end of your lease term.

-         You are responsible for the vehicle if you are planning to return it at the end of your lease term. Normal wear and tear is expected by any noticeable damage to the vehicle will have to be covered by you.

-         You are restricted on your kilometer allowance if you a lot of driving, you will face still penalties when returning the lease.

-         Title of the vehicle remains in the manufacturer's or the lien holder's name not yours. It is no considered to be your asset; therefore the vehicle can not be sold without a lien release letter from the lien holder.

Financing a vehicle explained – Financing a vehicle is paying back on a car loan over period of time, the amount borrowed is the "capital cost" on a vehicle. A.P.R or your annual interest rate is calculated based on your capital cost. Once you have signed the bill of sale the title of the vehicle will be in your name. The vehicle will become your asset and you will be solely responsible for resale or repairs on your car.

Pros:

-         When your finance term ends there is no residual or buy out value, the vehicle will be free of lien and in your name.

-         Negative equity rarely occurs when you are financing your vehicle, at any given time when you are trying to sell your car, you should be able to walk away from your loan.

-         You pay less interest overall, when you calculated every penny spent on that particular vehicle, your total amount spent including interest will be less compare to you buying out your lease.

Cons:

-         Monthly payments are much higher compare to a lease, usually double your lease payment, this is because the residual value on a lease payment is also been calculated into your monthly payment.

-         Cash flow becomes an issue when financing since monthly payment is much higher, if you miss or default on your payment you maybe risking your credit score been lowered.

Now you have a comprehensive understanding with both options, you can use your best judgment when it comes to your next new car.

Author Rick Tao Li, for more useful articles related to this topic please visit me online at http://www.soscarloans.com