Wednesday, 30 December 2015

Most people shopping for a new car aren't able to pay for the car in cash, so they must determine how to finance the car.

To purchase the car, you'll need to take out a car loan. But leasing is another way of financing a car and can be a better option for some people. If you're concerned about your monthly payment, you can calculate the payment for both leasing and buying with this  lease vs. buy calculator  from But the monthly payment shouldn't be the only deciding factor. "The choice really comes down to lifestyle," says Scot Hall, executive vice president of "What do you need a car for, how much do you want your monthly payments to be, and how often you'd like to drive a newer style of car."

To determine whether to buy or lease your next car, consider these pros and cons of each.

What are the advantages and disadvantages of leasing a car?

The best thing about leasing is that you can likely get more car for your money. Rather than financing the entire price of the car, you're just financing the difference between the car's value now and the car's value at the end of the lease. So by leasing, you can probably drive a newer, nicer car for a lower monthly payment. And because most leases last only about three years, which is usually the same amount of time that a new car warranty lasts, your car will be under warranty the entire time you drive it.

However, car leases come with mileage limits typically 9,000, 12,000 or 15,000 miles per year. If you go over the agreed-upon mileage limits, you'll pay a penalty. And because you're just paying rent on the car each month and not building any equity, you have nothing when your lease is up; to keep driving, you'll have to start a new lease with a new payment. When you lease cars, you'll always have a newish car but you'll never get to a point where you don't have a car payment.

Pros and Cons of Buying a Car

When you purchase a car and finish making all the payments, the car is yours. If you choose to keep driving it for several years, you can save the money you would have spent on a car payment or lease. And when you buy a car even if you're still making payments on it there are no mileage restrictions. For people who drive a lot of miles each year, purchasing is usually the best bet.

But there are drawbacks to purchasing a car as well. For instance, most car finance companies expect you to make a down payment of 10 percent to 20 percent of the cost of the car. If you don't have the money for a down payment and can't wait to save it, purchasing may not be an option.

And to truly get the benefits of buying a car, you need to drive the same car for several years to save the money you would have otherwise spent on a car lease or loan. If you plan to keep buying a new car every few years and continue making a large car payment every month, leasing may not be a bad option.

Before making your decision, weight the advantages and drawbacks of both purchasing and leasing. Most importantly, think about "how much you plan to drive the vehicle, and how long you think you will want to drive the vehicle," Hall says.

The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.

Links to third party sites are provided for your convenience and do not constitute an endorsement. BBVA USA does not provide, is not responsible for, and does not guarantee the products, services or overall content available at third party sites. These sites may not have the same privacy, security or accessibility standards.