You found the right car? Nice work. Here are the three ways you can pay for it.
Paying for Your New Ride
You’ve done your research, negotiated a great price and now you’re ready to buy your next vehicle. So, naturally, the next question you may be asking is how am I going to pay for it?
If you followed our Essential Moves to Make Before Your First Test Drive, you’re prepared to answer this question with confidence. If you’re still on the fence about how to pay for your next vehicle, let’s explore your options.
Pay with cash
Paying for your new or used vehicle in cash eliminates your interest costs and finance fees, which can save you thousands. It also means you will not make monthly car payments, which lowers the “transportation” line item in your monthly budget. The downside of paying cash is the strain it can put on your savings. Remember to keep enough savings left over to cover financial emergencies like that proverbial flat tire.
Finance your purchase
Most Americans choose to pay for their vehicles by financing their purchase through a credit union, bank, automaker, or financial institution. Financing a purchase means you are using someone else’s money to pay for your car, freeing up your money for other goals.
The downside of financing is that borrowing money comes at a literal cost in the form of interest charges and financing fees. The longer you finance, the bigger the financial bite. Avoid the temptation to stretch your loan over a longer period to lower the monthly payment. Financial experts suggest limiting your loan term to 60 months or fewer.
Lease the vehicle
If you’re someone who likes driving a new car every few years, leasing might be for you. When you lease a vehicle, you agree to rent the vehicle for a specified term and monthly payment. These monthly payments are typically lower than the monthly payment associated with buying the vehicle outright. Keep in mind that leases often require a down payment and the first month’s payment on delivery.
Auto leasing is available through banks, credit unions, finance companies, and even the automakers themselves. At the end of the lease, you can either purchase, trade, or return the vehicle.
The downside to leasing is you are not the owner of the vehicle and will probably be looking at another cycle of payments to keep you on the road once the lease term ends. For this reason, a lease is potentially more expensive in the long run than paying cash or financing. Another disadvantage of leasing is that most lease contracts include an annual mileage allotment (7,500-15,000 miles) and exceeding these limits can cost you.