It can be difficult to choose between buying and leasing an automobile. On the one hand, purchasing a vehicle results in higher monthly payments, but in the end, you own an asset, that being the vehicle itself. A lease, on the other hand, provides lower monthly payments and allows you to drive a vehicle that is more expensive than you can afford, but you are locked into a cycle in which you will never stop paying for it. Leasing is on the upswing, with more people opting for a lease over a loan than they did only a few years ago. Located in the New Orleans, Metairie, or Kenner areas? Call, click, or come on down to Toyota of New Orleans for any of your automotive needs!
Buying a car with a typical auto loan is pretty straightforward. You borrow money from a bank, credit union, or other lending organization and repay it in monthly installments. The interest on the loan is paid with a portion of each payment, with the remainder going toward the principal. If the interest rate is greater, the payment will be more. As you repay the principal, you build equity until the car is totally yours at the end of the loan. You have the freedom to retain the car for as long as you want and treat it whatever you want. Modification or abuse may result in future repair expenses and a lower resale value.
To receive a cheaper monthly payment, some automobile purchasers opt for longer-term car loans of six to eight years. Long loans, on the other hand, can be dangerous, therefore these purchasers could prefer leasing. Longer loans make it easier to get "upside-down" (owing more than the car is worth) and remain there for a long period. If you need to sell the automobile quickly or it is wrecked or stolen, the trade-in, resale, or insurance value is likely to be less than the amount you still owe.
It's hard to form a fair comparison between a six-year loan and a regular three-year lease, for example. The bank borrower still has three years of payments to make after the lease expires, but the lessee must find another vehicle or accept the lease's buyout option. A lease can also be "subvented," or made more affordable. The automaker can either take money off the top with a special lease discount or increase the residual, or both. On a lease, an automaker may offer additional rebates not available to loan customers. Furthermore, a lease's "money factor" (interest rate) may differ from the interest rate offered on a loan, making an accurate comparison can be very difficult.
If you are curious about financing, contact our sales professionals at our finance department or find out more about your trade-in today!