The debate in the pros and cons of financing vs. leasing a vehicle rages on, with much to be said on both sides. These big-ticket decisions are highly personal and based on each person’s unique individual choices and financial situation. Once you’ve made your decision and thoroughly examined the pros and cons of financing vs leasing a vehicle, it’s wise to understand the process thoroughly so that you can avoid expensive errors.

Drawbacks of Leasing

• Avoid signing long-term leases
  The idea of leasing is to roll through cycle swiftly, avoid maintenance and drive new vehicles. Leases longer than 5 years are a no-no in terms of cost-benefit.
• Not reading the terms about mileage
  First-time lessors may not know that there are annual mileage caps. Going over this can be expensive.
• Gap insurance
  “Gap” is the difference between the value of the car and the lease amount owed. Get gap insurance to avoid paying out of your pocket in case you need to.
• Care for the car
  Though you don’t own the vehicle, it’s crucial to keep it in top gear. Otherwise, you may have to fork out a large sum at the end of the lease term.
• Very low monthly rates
  There may be hidden clauses that you may not have noticed because of the attractive low monthly terms.

Drawbacks of Financing

• Over Emphasizing Monthly Payment Rates
  Focusing on lowering payment rates can get you trapped in unnecessarily longer repayment terms, loaded with a bunch of extras.
• Long Term Loans
  Avoid loan terms that cross 60 months. They’re risky because they attract higher interest rates and trap you into a longer financial commitment. You could end up owning a depreciated vehicle that’s worth less than what you’re paying for it every month.
• Shopping For The Best Terms
  Don’t sign up with the first dealer you meet. Rates and terms vary greatly. Do your homework. Visit bank websites, talk to finance companies, online lenders, finance facilities offered by manufacturers, credit unions and consolidate all the information. Only then should you make your decision.
• Rolling Old Loans
  Avoid rolling an old loan balance into financing a new car loan. This impacts your loan-to-value ratio and ramps up interest rates.
• Know Your Credit Rating
  Getting information about your own credit score gives you power and leverage. If you need to fix your score before applying for financing, take the time to do it. There may be errors that you can correct, bills that can be paid, etc to present a better picture before you approach a financier.
• Read The Contract
  Most people simply sign on the dotted line without going through the fine print or the terms and conditions. The paperwork must be in sync with the deal that you were promised and the one you think you’ve signed up for.
• Know Your Situation
  You may have taken out a loan when you didn’t need to. Paying out from available funds is a smart way to save interest and long term commitment. You also need to work out your complete monthly budget to know what terms you can afford.

It’s critical to keep the above information in mind when analyzing the pros and cons of financing vs. leasing a vehicle.