What’s The Difference?
For those of you that don’t know, there are generally two ways to acquire a car. The first medium involves financing the car, which means you are buying the car in its entirety. The second medium allows you to lease the car, which is basically renting the car for a long period of time (usually 1-2 years). Each option has its advantages and disadvantages. However, today I will explain and talk about which option is generally the best.
What Should I Pick?
Choosing the right option can be pretty difficult, but I like to think from a logical perspective and I hope that this helps you in deciding what medium to choose. To begin, let’s analyze what happens to our money when we follow through with one of the choices.
If you look at used cars you can tell that they still have a decent amount of value. For example, as of now, a 2015 sedan is selling for $15,000 on average – so we’ll assume this value as well. This implies that the car only cost us $15,000 over the 5 years in which we owned it. This may not seem much compared to the leasing option, but we actually had much more freedom –> because we could drive as many kilometers as we wanted to and especially how our equity in the car is 100%! In effect, it is important to realize that leasing results in 0%, whereas financing allows you to gain complete equity in the car. Finally, for the purpose of logic, what about our other option: used cars?
How About Used Cars Instead?
To emphasize, what if we financed a used car in the first place. Let’s say we picked a 2018 sedan. On average (as of now), it would cost us around $20,000. (Note: The car lost over 1/3 (10,000/30,000) of its value in just 2 years –> so it doesn’t make sense to buy brand new). Next, let’s assume that we wanted to sell this car in 3 years. Once again, it would sell for around $15,000. Therefore, the actual cost would be $5,000 as opposed to $17,550 while leasing. As a result, when we actually analyze and think about what we are doing in each step, we can find the most logical thing to do.
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