Manufacturers and dealers may have great deals available if you choose to finance a vehicle. In this article we’ll look at the pros and cons of financing a vehicle.
Advantages Of Financing A Vehicle
- Equity – When you choose to finance a vehicle, you’re building equity in that vehicle. This will give you additional buying power at the end or even during your finance term if you choose to trade in.
- Stop The Vehicle Payments – After you’ve made the final payment on your financed vehicle, it’s yours. You can continue to drive it without having to worry about having to make car payments.
- No Mileage Limitations – Unlike a lease, there are no limits to the allowable mileage during the term of the deal. This means no excess mileage penalties, which can run into the thousands on a leased vehicle.
- Lower Insurance Rates – Leased vehicles require more coverage than financed vehicles. That means you may save a few dollars a month in a financed vehicle than one that you’ve leased.
- Vehicle Modifications – Typically, financing companies don’t have limitations on after market modifications that you can make. With a leased vehicle, any modification you make will have to be removed at your expense at lease end.
Disadvantages Of Financing A Vehicle
- Higher Monthly Payments – When you choose to finance a vehicle, your monthly payments will be higher than on a lease.
- Down payment – With a financed vehicle, you’ll need to put money down. This can be in the form of cash or a vehicle trade.
- Depreciation – When you lease a vehicle, you’re essentially financing the depreciation of that vehicle. When you finance it, you end up taking the loss. Vehicle’s tend to lose at least 50% of their value within the first 4 years. If you’re planning on keeping the vehicle for 7 – 10 years than depreciation won’t matter.
- Maintenance Costs – After the car is paid for, you won’t have any more monthly car payments. Having said that, depending on how it was maintained and driven you may now be looking at higher maintenance costs.
Summary
So which way do you turn? Lease or finance? That really depends on you and your needs. If you typically drive under 20,000 km (12,000 miles) per year leasing may be a better option.
If you enjoy driving your vehicle for 7 – 10 years, financing is better for you. If you like the idea of ownership, financing is for you. We hope you enjoyed this article on the pros and cons of financing a vehicle!
