With a lease, you are paying mainly for the car’s depreciation over the term of the lease (typically three years). Monthly payments are usually lower than they are for a car loan, and repairs (but not maintenance) are covered as long as the warranty lasts. Be sure to negotiate just as hard for the price of a leased car as you would for a purchase.
Even if the loan or lease payments fit your budget, be sure you understand how much interest you’re paying. The dealer’s finance and insurance office can extend a loan or manipulate a lease to lower your monthly payments, but that may not be best for your overall financial prospects.
Budget for costs beyond the monthly payments, such as repairs, maintenance, fuel and insurance. You can find a 5-Year Cost to Own tool at www.kbb.com that estimates those costs, depreciation and more.
One of the main decisions car buyers make is whether to get financing at the dealership or from a bank or credit union.
Borrowing through the dealership allows you to take advantage of any manufacturer incentives, such as low- or no-interest financing or cash-back offers.
Major used-car sellers, such as CarMax and Carvana, also offer loans. CarMax, for example, aggregates multiple financing sources on its website so that buyers can compare deals. Carvana includes a tool on its website that lets you pre-qualify for a loan so that you can explore various vehicle financing options.