Buying a new vehicle is usually expensive, so we will help you decide on a method that will be affordable for you. There are two methods of buying a car that you can use: a lease vs loan. Both methods have their advantages and disadvantages, and we unpack them here for you to use when you decide to buy a new vehicle.
What is a Lease?
Leasing is similar to renting a car, but for more than a month, usually between 24 or 36 months. Although it can be for any number of months. Instead of paying off the car, you only pay for the amount of depreciation that is expected to occur during a set period of time. You normally, but not always, are expected to put down a deposit on a leased car.
Car leasing can be complex when trying to understand the financing options available. Unique terms such as capitalized cost and residual value can often confuse many shoppers when choosing to lease or buy a vehicle.
What is Capitalized Cost?
This is the ultimate price of the car. This price is normally fixed, but you can still negotiate it downward with many dealerships. A lower cap cost means you will be paying lower monthly installments. You can also get cap cost reductions which are special lease deals from automakers.
What is Residual Value?
The residual value is the estimated value of a car at the end of its lease term or useful life. The residual value (also called salvage value) is the predicted value of what a car is worth at the end of the lease agreement. The lessor uses the residual value to understand the number of monthly payments the lessee will make during the life of the lease period. It is generally accepted that longer lease terms have lower residual values.
Benefits of Leasing a Chevrolet Tahoe?
- Your monthly lease payments and overall monthly cost may be lower than a traditional financing loan
- You don't have to go through the hassle of selling the vehicle once your lease is up
- The contract terms for leasing are typically shorter than a car loan
- You have the ability to turn the vehicle in at lease end and get a new vehicle
Lease a Chevrolet Tahoe at Zeigler Chevrolet in Schaumburg, IL
Cons of Leasing a Vehicle
- You don’t own the vehicle
- There are annual mileage limitations
- There may be a penalty if you terminate the lease contract early
- A lease agreement is a binding contract
- A lease agreement, once signed, becomes a legally binding agreement between you and the car leasing company. In return for the use of the car for a specific period, you agree to make a monthly payment. If you break that contract by failing to make a payment, you are expected to return the car.