How is Financing Different Than Leasing?
Financing a new is different than a lease in a few crucial ways. The most obvious is that, despite trends towards 72- and 84-month loans, financing a car results in a higher monthly payment. This is because you own the car and retain both the equity and the depreciation. To see how this works, you can use our calculator to estimate your loan payment here.
Unlike leases, auto loans can be acquired at your local bank or credit union. Smart consumers will know their credit score, know average interest rates, and get pre-approved before shopping for their new car.Type your paragraph here.
What is a Lease?
A lease on a car is much like a lease on an apartment: You sign a contract for a fixed price over a fixed period of time, usually between 24 and 36 months, with a fixed mileage. This price is usually far less than it would take to finance the vehicle outright. When the lease is over, you return the car to the dealer, pay for any damage and it's over. This means you pay less, but retain no equity — or liability— in the vehicle. And the end of the lease, you have nothing. That is, unless you buy the car at the residual value set at the time of the lease by the lender.
Your monthly payment on a lease is dependent upon a number of factors including the vehicle's price, your initial payment and something called a "money factor." This can be thought of in a similar way to an APR on a normal loan; the higher the number, the more expensive the financing of the lease is.
There is a little-used "one-pay" lease where you can pay the full amount of the lease at drive-off. This method requires you to drop thousands of dollars in one swoop, but will reduce the fees charged on the lease. It may also be easier to be approved for this type of lease, but there's a downside: all that cash won't be available to earn interest for you.ur paragraph here.