How to compare buying and leasing your next car

If you’re considering buying or leasing a car, your knowledge about the options and how you prepare for a deal can make all the difference in your finances. We’ll review eight tips to get the best deal on your next ride based on your finances, goals and lifestyle.

1. Check your credit scores

Lenders rely on your credit scores when setting the interest rate on your car loan or lease. You’ll qualify for competitive rates with lower monthly payments if you have good or excellent credit.

If you have poor credit, you may be turned down for a loan or lease or quoted a relatively high interest rate or payment. So, check your credit score early in the process and consider waiting for a car loan or lease until you improve subpar credit.

2. Know what you can afford before car shopping

Before shopping for a car, know how much you can afford. A good rule of thumb is to keep your payment below 10% of your net pay. For example, if your monthly take-home pay is $4,000, your car payment or lease shouldn’t exceed $400.

Remember that you’ll have additional ongoing expenses, such as fuel or power, car insurance and maintenance not covered by a warranty or lease agreement.

3. Research car loans for the best offer

Shop and compare car loan interest rates. Consider the shortest loan term you can afford, which reduces the time you pay interest and saves money. Then, you can compare your best loan offer to the cost of leasing.

4. Avoid getting upside down on a car loan

Within the first year of ownership, the average new car depreciates about 20%. If you get a car loan and owe more than the vehicle is worth, you’re “upside-down.” Consequently, if you decide to sell the car before paying it off, you must make up any difference between the sales price and the remaining loan balance.

To avoid getting upside down, consider paying a larger down payment. For instance, if a car costs $40,000, try to put down 20% or $8,000. In addition to giving you more vehicle equity, it reduces your monthly payments or shortens the loan repayment period.

ALSO READ: Tips and tricks for buying a car

5. Consider the pros of leasing a car

When you lease a car, you sign a contract allowing you to drive it for a period, such as three or four years, after making a down payment, such as 10%. In addition to your credit, down payment and term, other factors that determine your monthly lease payment include dealer fees and state and local taxes.

At the end of your lease contract, you can return the car to the dealership or purchase it for a predetermined depreciated value, also known as the residual value.

Some pros of leasing a vehicle include:

• Typically costing less than buying.
• Having significant repairs are covered (unless your lease exceeds the warranty).
• Driving a new car with the latest safety features every few years.
• Avoiding the hassle of trading in or selling a vehicle.

6. Consider the pros of buying a car

While leasing can be a wise move depending on your finances, goals and lifestyle, some pros for car ownership include:

• Being able to customize it.
• Selling it or trading it for another vehicle.
• Driving as much as you like (leases come with mileage maximums).
• Paying it off and continuing to drive it.

RELATED: Compare auto loans and refinancing options

7. Buying a used car requires due diligence

You may decide that you don’t want to buy a brand-new car. Getting a used vehicle that’s already depreciated can be a great way to save money. Many dealers offer certified pre-owned vehicles that have been inspected and have an extended manufacturer warranty.

If you buy a used vehicle from a dealer, they may provide a free car history report. However, if you buy a car from an individual, purchase a vehicle history report or have it inspected by an outside mechanic.

SEE ALSO: Buying a car online vs. at a dealership

8. Expect to negotiate your car purchase or lease

You should negotiate the deal whether you lease or purchase your next vehicle. Remember that getting preapproved for a loan doesn’t mean you should spend the maximum amount.

Use these tips to get the best deal possible:

• Focus on the price, not the payment. If a salesperson asks what monthly payment you want, tell them you only want to discuss the car’s purchase or lease price.
• Bring information about your vehicle research. Show a salesperson your research and say, “If you can beat this price, I’m ready to make a deal.”
• Know the trade-in value of your vehicle. If you have a car to trade in, ensure you have a reasonable price in mind so a dealer can’t offer too little.
• Ask for a higher lease mileage allowance. You must pay an overage fee if you exceed a lease’s mileage maximum. So, try to negotiate extra miles for free.
• Request a lower interest rate. Feel free to push for a lower interest rate to save money, especially if you have excellent credit.
• Discuss the buyout price. Let the salesperson know if you’re considering buying a vehicle at the end of a lease. It’s possible to negotiate a lower price than the anticipated market value of the car.

This article originally appeared on Finder.com and was syndicated by MediaFeed.org.

Written by

Laura Adams

Laura Adams is a money expert and spokesperson for Finder. She's one of the nation’s leading personal finance and business authorities. As an award-winning author and host of the top-rated Money Girl podcast since 2008, millions of readers, listeners, and loyal fans benefit from her practical advice. Laura is a trusted source for media and has been featured on most major news outlets, including ABC, Bloomberg, CBS, Consumer Reports, Forbes, Fortune, FOX, Money, MSN, NBC, NPR, NY Times, USA Today, US News, Wall Street Journal, Washington Post, and more. She received an MBA from the University of Florida and lives in Vero Beach, Florida. Her mission is to empower consumers to live healthy and rich lives by making the most of what they have, planning for the future, and making smart money decisions every day. See full profile

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