You have three payment options when buying a used car. Those options are cash, lease, and financing. Each option has its benefits and potential drawbacks, depending on your specific circumstances. The best way to know which car buying option is right for you is to understand how each transaction actually works.
Most car buyers who want to pay for the used car using cash usually end up buying a used car from a private seller offering a lower sticker price. Of course, if you are flush with cash savings and can afford several thousand dollars up front, you can pay cash for a car at a dealership. The drawbacks of choosing to buy a car with cash are limited but important. First, you will be putting a serious dent in the cash you have on hand. One unexpected issue after paying cash for a car can leave you in a financial dilemma. The other drawback of paying cash is that your options are limited to what you can afford to pay for in full, instead of the larger pool of car options you could afford to pay for on a monthly basis.
A car lease gives you the privilege of driving a car for a period of time or number of miles as long as you keep up with the monthly payments and car maintenance schedule. Most leases include the cost of regular maintenance, like changing the oil in your car, and an extended warranty is also generally included. The dealership you lease the car from retains ownership of the vehicle and you do not benefit from the car’s equity. Someone who needs a car for business related driving benefits from leasing, as the monthly payments can be considered tax deductible.
If you want to own the car you are paying for, but cannot afford to pay for it in full all at once, financing the purchase is likely the best choice for you. With financing, you apply for a car loan to cover a substantial portion of the car’s asking price. The more you contribute to the down payment, the less you will need to finance. You make monthly payments toward the financing until the loan is repaid, plus interest, and you own the car.
The choice of whether to finance, lease, or pay cash for your new car should be dictated by your financial situation. Consider your disposable income, monthly bills budget, and what you need from your vehicle before deciding which payment option is the best fit for your new car purchase.
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