There are plenty of people in the world and taking online traffic school who will tell you financing a car is an atrocious idea. Therefore, it should never be considered. They’ll also tell you how you will spend more money than the original price for an investment that depreciates over time.
Contrastingly, plenty of people have financed a car and are happy with their decision just as much as sharing California driving best kept secrets. They’ll argue the low monthly payments is a perfect complement for their budget. Especially, because they don’t drive their car that often.
With so many conflicting notions surrounding the idea of car financing, deciding whether it’s a right fit for you can get murky. We’ve done the research and explored the possibilities. Now, we’re answering the question of whether it’s wise to finance a car.
You’re Borrowing a Car
What is often forgotten about leasing is you don’t own the car. You’re borrowing the car from the dealership and making monthly payments on it. This is similar to how you would rent an apartment or home.
If you’re leasing to own the vehicle, you will be making monthly payments until a designated date where the dealership will consider you the sole owner of the car. You won’t be saving any money, because you’ll eventually pay back the full price of the vehicle. Leasing a car is like borrowing your parent’s car while in high school, except with payments.
The Price Depreciates
Cars are considered to be a horrendous investment, because of their high depreciation rate. Over the course of 5 years, a car’s value can drop by nearly 60% of its original price. Within a short period of time, your car is more than half of what it costed.
A car’s value will never increase over time; therefore, you will naturally lose money when you invest in a car. When you lease a vehicle at its original price, you will still be paying that original price over the course of time. You have to appreciate the depreciation.
You’re Paying More Money
The depreciation discussion leads us to our next topic, which is the idea that you will be paying more money over time. Because of the interest rates associated with leasing a vehicle, you will end up paying more money than what the car is worth. Depending on the interest rate, you could be paying more than $2,000 on your next car lease. With $2,000, you could buy half of a car from 6-years ago.
Another pesky feature about leasing a car is the mileage restrictions. When you lease a vehicle of your choice, you are allocated a certain number of miles you cannot exceed. If you do surpass the number of miles associated with your car, you will have to pay a fine corresponding with the number of miles you drove over on your limit.
This will cause for an expensive fine depending on how far you’ve driven throughout the year. These limitations are great for car leasers who rarely drive, however it can come off as a deal breaking restriction to long distance travelers.
Used Cars Aren’t that Bad
With all the money you save from not leasing a new car, you can make a worthwhile investment in a used vehicle. Buying used has the same benefits of leasing a car, without the obligations of monthly payments on a depreciating chunk of metal. You’ll also be free of any mileage limitations, so you can take that road trip you’ve been putting off.