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Vehicles
Buying vs. Leasing a Car
Generally, leasing a car has smaller monthly payments than financing a purchase of a vehicle. The reasoning is simple. Leasing a car is similar to renting a car from the dealer. Upon the end of the lease the dealer has a chance to sell the car. Therefore, the dealer prices the lease according to how much the vehicle should cost after the lease is over (residual value). On the other hand, when a vehicle is purchased, the vehicle payments are based on the full value of the car plus interest. Of course, the vehicle is yours at the end of the payment period.
Understanding Vehicle Financing
With prices averaging more than $28,000 for a new vehicle and $15,000 for a used vehicle, most consumers need financing or leasing to acquire a vehicle. In some cases, buyers use "direct lending:" they obtain a loan directly from a finance company, bank or credit union. In direct lending, a buyer agrees to pay the amount financed, plus an agreed-upon finance charge, over a period of time. Once a buyer and a vehicle dealership enter into a contract to purchase a vehicle, the buyer uses the loan proceeds from the direct lender to pay the dealership for the vehicle. Consumers also may arrange for a vehicle loan over the Internet.
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