between cash, financing or leasing can be tricky, so weve prepared a brief primer to
help you out:
Initial payment. For many people, a typical 10% or 20% down
payment can be very intimidating. Of course, the larger the down payment, the lower the
monthly costs. Also, the more you put down, the more you can haggle about the interest
rate on the loan. The least expensive option, at least initially, is to lease. Many
dealerships will allow you to roll the down payment into the loan. Of course, that raises
the monthly fee. The most expensive option is to pay cash.
Monthly payments. Again, leases will usually give you the lowest monthly
cost. But thats not as good as it sounds, because youre only paying off the
amount the car will depreciate during the life of the lease. With regular financing,
youre paying off the entire purchase price. If youve opted for a cash
purchase, you have no monthly payments - unless you cleverly borrowed the price of the car
from another source (like a home equity line.) This ploy lets you avoid high dealer
interest rates and hidden fees, while self-financing at a much cheaper rate.
Equity. This refers to the amount of value youre left with
after the lease or finance agreement is finished. When you finish paying off a 36-month
auto loan, you end up with about 50% of the original purchase value. So your $30,000 ride
can be sold for $15,000 or used as a trade-in. In contrast, when you finish paying off a
36-month auto lease, youre left with nothing. So, from the vantage point of equity,
leasing is the most expensive way to buy a car. Equity loss is most unfair to the cash
purchaser, since the bulk of a cars depreciation comes in the first two years of
Tax savings. Our friends at the IRS offer substantial tax benefits
when you lease a car. In addition to deducting the interest portion of the lease payment,
Uncle Sam lets you add the cars yearly depreciation to the tax break. Its not
such good news for people who take conventional financing: there are no deductions
permitted for your interest payments. Of course, the taxes of cash buyers are unaffected.
The New Car factor. Theyre shiny and cool and
theyve got that great smell - theres nothing like a new car. Theres also
nothing like the bite they take out of your wallet. Before you worry about how to finance
it, ask yourself if you really need a new car. Does the car have to be brand new? Many
financial experts recommend buying a New Used automobile. If you can find a
slightly-used, low mileage, well-conditioned car with a couple of years of warranty
remaining, youve made the best all-around deal. But, of course, if youve
gotten the scent of a sharp, new roadster, and you just have to have it, finance wisely.
No matter how you decide to
finance your new vehicle, you can rest assured knowing that you have options when it comes
to your car insurance. The purchase of a new car and the sale of an old one can all affect
your policy, so let NetQuote help! We can connect you with multiple agents who can help
you get the coverage you need at the price you want.