You’ve done extensive research on your next vehicle; you found the right SUV for you, and now you are in the final phase where, provided you don’t have thousands saved, you have the choice of how you want to pay for it.
Now, you must decide whether to lease or do a vehicle loan.
If you are like many buyers, this isn’t a decision. A car loan is the only option for you. After all, with this type of financing you can do what you want to your SUV, drive it as many miles as you would like and once you pay it off, you don’t have one less payment to make. You own it free and clear and can keep it as long as it operates.
While financing to own is a great option for these reasons, is it the right choice for you? Leasing, while a less popular alternative, offers many benefits that could help you now and well into the future. Before stating the benefits, let’s explore how vehicle leases work.
What does leasing my SUV entail?
Leasing is another way to finance your SUV. Where leasing differs is you pay for the use of the SUV. To illustrate, say you lease a 2017 Honda CR-V for three years. With leasing, you won’t finance the full worth of the CR-V, just the amount of usage during those three years of ownerships. The cost includes factors such as:
- The depreciation cost of the SUV during the time you lease it.
- As part of depreciation costs, mileage and wear and tear are factors influencing price. The more you drive the SUV, the less value it will retain, making the lease more expensive. Meanwhile, most dealerships factor normal wear and tear into the price of the SUV when pricing it for a lease. In both instances, if you drive more than the allotted miles, or there are signs of extensive damage when you turn in the SUV, you could incur hefty penalties.
- Similar to a car loan, you pay an interest rate with leasing which varies depending on your credit, promotions, and other factors.
When you decide to lease, you commit to renting the SUV for a specified time, normally between two and four years. Your lease will have terms such as how many miles you can drive it in a year. If you plan to drive extensively, consider doing a higher mileage lease. Sure, you’ll pay a higher monthly payment, but you might not have to worry about exceeding the total mileage either.
Once you fulfill the terms of your lease, you take the SUV back to the dealership. Provided the vehicle is in good condition your obligations are done. During this time, many lenders will also give you the option to buy the vehicle as well. It’s this flexibility that makes leasing an appealing option.
1. You don’t have long-term commitments
As I noted previously, most leases only lasts a few years. This gives you flexibility in that if you want a newer SUV you can get it if you don’t want a vehicle you are under no obligation to get one.
This flexibility also gives you more options when life happens. To illustrate, say you end up having several children in the next few years. Most likely, you will need more space, so if you started with a compact SUV, with leasing you have the opportunity to upgrade to a more spacious offering once the term expires.
Another example concerns mobility. Say you love your SUV but you took a job in a large city. And if you are going to take the public transportation to work, there’s no point in keeping it. With a lease, you can find someone to take it over through websites like swapalease.com.
Conversely, you don’t receive as much flexibility with vehicle loans. While you can trade in your SUV at any time, unless you made a higher down payment--more than 20 percent of the SUV’s purchase price--you will end up owing more than the SUV is worth. In this situation you’ll either have to bring cash to zero out the balance or apply the negative equity to your new loan, resulting in your new loan being more expensive.
Meanwhile, if you wanted to sell your SUV, you’ll need to make up the difference between the loan amount and the SUV’s current value.
2. Your monthly payments are normally lower
Since you are only financing the use not the total costs of the SUV, leasing represents an affordable option if you have good credit. If you do, you can receive competitive leasing terms which don’t require much out of pocket costs--some manufacturers offer no money down lease incentives--and you save money each month due to the lower monthly payments.
3. You’ll drive the newest models available
Not only can you save money with lower payments, leases allow you to drive the newest SUVs. This is an opportunity for you and your family to try some of the latest technological and safety innovations for less expense than if you wanted to do a vehicle loan.
4. Lower repair costs
Many manufacturers offer lease incentives that coincide with their warranty offerings. This means that when you lease an SUV say for three years, you’ll have full warranty protection during the whole time of ownership, resulting in no out of pocket expenses for you should any parts malfunction. In addition, many dealerships offer free services such as oil changes and tire rotations for the first one or two years of service. Therefore, it’s possible if you do a two-year lease you won’t have to pay for any services.
Overall, leasing will be a more expensive option if you plan to have an SUV for the foreseeable future. At the same time, if you want flexibility in when and what you drive, low repair expenses, and affordable monthly payments, leasing is a great choice to look into.
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