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Reducing the Cost of Car Ownership – Tips To Help You Save Money

Updated March 8, 2013

Saving money should last past the initial purchase

leasing or buying a new carThose shopping for a new car want to save as much money as they can on the initial purchase or lease as well as reducing the cost of car ownership overall. The decision to finance or lease each has their advantages and disadvantages. Unfortunately, when making the initial purchase or lease, most people do not consider the cost of the vehicle over the life of the loan or lease to determine which will save them the most. You can get a great deal on the initial purchase or lease, and then end up spending that savings plus more during the time you are making your finance or lease payments. Following are some things to consider when deciding whether to finance or lease a vehicle so reduce the cost of car ownership through the life of the contract.

Compare the cost of buying versus leasing before you sign the contract

Before you decide to lease or finance a vehicle, you want to do some number crunching before you decide which will be the best option for you. Some things to take into consideration are the amount of money you have for a down payment or the value of your trade-in, your credit score and the vehicle that interests you. If you want to lease a new vehicle, the best time of the year to get a good deal on the next model year is as soon as they arrive at the dealership. This is also a good time to finance a new car of the current model year.  For example, if you want to lease a vehicle this year, your best plan is to wait until August or September and lease a 2013 model. If you want to finance a vehicle, anytime between now and the end of the year finance a new 2012 model. This will save you the most money because dealerships will usually offer deals on leases to entice buyers to try out the next model year. At the same time, they want to clear their inventory of the current model year and offer great deals on financing as well. 

The biggest factor that will make your decision to finance or lease a vehicle is your credit rating. In most cases, you must have excellent credit to lease a vehicle. If your credit is average or fair, chances are your only option will be to finance a vehicle. The upside to it is, financing a vehicle and paying the loan as agreed is one of the best ways to improve your credit. The amount you have for a down payment or the value of your trade-in can also help you decide which is the best for your budget. When you lease a vehicle, you are only paying for a portion of the value of the vehicle and at the end of the lease term, you are given the option to turn it in, or finance the remaining balance. When you finance a vehicle your loan covers the value of the vehicle and at the end of the term, the vehicle is yours free and clear. Before you lease a vehicle, you want to make sure that it will retain its value after the lease term is up in case you do decide to finance the balance.  Lease payments are usually less than finance payments, but keep in mind that when you finance you are actually buying the vehicle and when leasing you are essentially renting the vehicle for the term of the lease. If you do not know what option is best for you, it is best to find a dealership that has cars you are interested in and have them work the deal both ways to see which is better for you. 

Compare the cost of maintaining a leased or financed vehicle car lot sale

Whether you finance or lease a vehicle, for the first three years or 36,000 miles, the manufacturer’s warranty will provide the same coverage for both options.  Depending on the dealer, if you lease a vehicle they may offer your free oil changes for the life of the lease, which can not only save you money, but also allow you to provide accurate service records at the end of the lease. Some dealers have begun offering a period of free oil changes for customers that finance as well as a gesture of good customer service. In most cases, a lease term will be the same as the manufacturer’s warranty, so any repairs will more than likely be covered by the warranty. If you finance the vehicle, you have the same coverage for the first three years of your loan, and then you can either purchase an extended warranty, or pay for the repairs yourself. In most cases if the vehicle is within the appropriate mileage, the cost of an extended warranty can end up saving you a lot of money on large repairs after the warranty expires. 

There is really not much of a difference in maintenance costs whether your finance or lease a vehicle. Always ask the dealer if they offer an extended warranty if you finance, as well as any type of free oil change service, sometimes you can use that to your advantage to work a better deal if you purchase an extended warranty. If you lease a vehicle and they do not offer free oil changes that can also be something you can use as a negotiation tactic as well. 

Differences in auto insurance expense between financing and leasing

The biggest difference in cost when it comes to financing or leasing a vehicle is insurance.  Leasing a vehicle requires much higher limits of liability than financing a vehicle does. While both require full coverage insurance that includes liability, collision and comprehensive, the interest in the vehicle is much different between a finance company and a leasing company. When you finance a vehicle, the finance company is a lienholder on the vehicle, which means that if the vehicle is totaled, the insurance company must pay the balance owed to them first, and depending on if there is a shortage or overage, either you will owe the finance company or they will owe you. As a lienholder, they cannot be held responsible for any property damage or bodily injury you cause, as you are the owner. When you lease a vehicle, you are an additional owner of the vehicle and the leasing company is the primary owner. What this means is that through the lease, they are giving you permission to drive their car. Having higher limits of liability assures that any property damage or bodily injury that you cause with their car will be covered. 

To give you a better idea of the difference, every state requires a minimum limit that the insurance company will pay for bodily injury, bodily injury for an additional person, and property damage. In the State of Ohio for example, the minimum limitations are 12,500/25,000/7,500 for full coverage insurance on a financed vehicle. If you lease a vehicle in Ohio, those limits increase to 100,000/300,000/50,000. This means that you may $65 a month for full coverage insurance on a financed car and potentially upwards of $175 a month for full coverage on a leased car. Which essentially means the amount you may save on a lease payment per month will end up equaling the cost of a finance payment by adding the difference in insurance cost. If you do not have a perfect driving record, insuring a leased vehicle can potentially cost more per month in lease payment and insurance than a finance payment plus insurance. 

Final words on reducing the cost of car ownership

buying a carThe choice to lease of finance a vehicle has many variables and most of them are based on an individual’s credit rating, financial status and driving record. If you have great credit and a great driving record, leasing might be the most inexpensive option. If you have average credit and an average driving record, either option is possible. If you have poor credit and an even worse driving record, financing may be your only option. Spend some time doing research online to find which vehicles hold their value the best, as well as look for any special offers that a dealership may be offering. Now that you have more information, hopefully you have more tools to make a knowledgeable decision to lease or finance.

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Calvin Escobar
About Calvin Escobar

The Car scene is so diverse Where I come from, most enthusiasts recognize the amazing engineering (particularly the engines). The bulk of the ridicule originates from the manner in which many of the vehicles are modded/maintained. Thus, the jokes and or hate tends to be aimed more at the owner rather than the machine. All of which makes seeing properly sorted old Toyota's and Hondas at car meets, auto shows, and track days all the more refreshing.

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