Making the right decision for your finances can be incredibly difficult, especially when it's in relation to your primary mode of transportation. Because we understand that this decision is so important, we wanted to help you understand if leasing, financing or flat-out buying a car is the best option for your bank account. Although connected to your current financial situation, there are pros and cons to all of the options discussed above, and what you deem best for yourself and your needs is likely the most financially sound option. By explaining and highlighting the benefits and disadvantages of the three most viable options, we hope to help you understand what makes the most sense for your next car!
In a previous blog post for #CreditTipTuesday we reviewed how to Get Credit Approval for Major Purchases and what having a ‘good credit score,’ means and what credit score you need to make major purchases. Although briefly touching upon car purchases, this week, we dive deep into the trials and tribulations of the automobile decision-sphere and how you can apply credit to these financing options.
Leasing
Why lease? less expensive, lower maintenance costs, and the option of having a new car every few years
For those who don’t know, leasing a car essentially means that to utilize the car, a lessee (you) pays money to the lessor (the bank, the actual owner). The contract is for a specified period of time, typically two or three years. You're allowed to drive the car for a certain number of miles during this time, usually between 12,000 and 15,000 every year. You'll have a cheaper monthly payment because you're not paying the full amount of the car; however, the car is not yours at the end of the lease. You'll have to either find a new car or pay off your lease. So, If you want to drive a newer or higher-end car, monthly lease payments (leasing) will be more affordable than putting down a large down payment!
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Financing
Why finance? You can buy a car immediately without paying for anything up front.
For financing a car, you're borrowing money directly from a bank, finance firm, or credit union. You agree to pay the financed amount plus a financing fee over a set period of time if you take out a loan. When you're ready to buy a car from a dealer, you'll pay it off using this loan. When it comes to purchasing a car, as with other things in life, the higher your credit score, the more options you'll have. For those who need to build or rebuild their credit, a secured credit card might be the best option. Since a security deposit backs a secured card, most issuers offer guaranteed approval and no credit checks. Just like unsecured credit cards, secured card issuers actually share your activity with major credit bureaus like Equifax and TransUnion. So, if you have poor or no credit, you will still be approved and can start building your credit. Plastk Secured Credit Card allows users to build their credit through free credit insights and premium rewards. With Plastk, you are able to check your credit score for free! Knowing your credit score is the best way to rebuild it, opening up offers for financing a car with better interest rates. Apply for your Plastk Secured Credit Card and get guaranteed and easy approval. Building credit is so incredibly important. Once you've discovered the loan that's right for you, you can apply for pre-approval online or in person at a bank or credit union! However, it's vital to think about loan installments, interest rates, and payment duration. If you want to improve your credit, leasing is the ideal alternative because it will demonstrate to your creditor that you are trustworthy. Whether or not financing a car is a good option depends on your personal financial position.
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Buying
Why buy? If you have the cash, buying the car is the most cost-effective option.
Buying a car allows for much more flexibility and simplicity. However, it also provokes the question of whether or not to buy a new or used car. With owning a car comes a lot of burden, which can be considered a downfall when buying used or even new. Also, the value of new cars depreciates the second you step foot into it but then again, so the option of buying used can be incredibly enticing.
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Even if you chose to buy a car, you are stuck with another polarizing decision… whether to buy new or used. Although dependent on your life and financial situation, In terms of financing, fuel economy, performance, safety, reliability, and the amount of options and choices available, buying a new automobile provides far more value. However, we understand that this is a huge financial burden, and many individuals are on a limited budget! New cars are more expensive to purchase and insure, but they often have more efficient performance and fuel economy. Similarly, they offer the latest technology and safety features. On the other hand, used cars have a lower purchasing price, and warranty/ insurance is usually less but they likely won't have new advanced features and are less reliable.
We hope you enjoyed these tips and that they brought you one step closer to making a decision about leasing, financing or buying your next car! All in all, the decision to lease, finance or buy a car is based on a thorough examination of your personal budget and driving habits.
Disclaimer: The content provided on the Plastk Financial Inc. Blog is information to help Canadians become financially literate and learn about credit. Plastk is not responsible for building or ruining an individual's credit score or credit rating. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment, credit inquiries, and all other decisions should be made, as appropriate, only with guidance from a qualified professional.