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Should I Lease or Buy?

If you're not sure which is best for you, here are some facts that might help you make that decision.

  • Leasing is paying for the use of a car, rather than actually paying for the car itself.
  • Lease payments cover the cost of the vehicle's depreciation over the length of the term of the lease instead of the vehicle's purchase price.
  • You are expected to maintain the car during the lease, but when the lease is over you can either return the car or exercise the option to purchase it.

How Much Should I Spend?

It's easy to overspend your budget on a new car or truck. Here are some tips on how to avoid getting in over your head.

  • Start with a budget session to determine how much car or truck your money can buy, and how much money you feel comfortable spending.
  • Control your emotions. If you can't afford it, don't buy it.
  • Become familiar with information on your credit report. That way you can see for yourself that there are no mistakes, and that everything is accurate and current.

Determining your debt-to-income ratio

You can figure your own debt-to-income ratio, to gauge your ability to repay a loan.

  • Divide your total monthly debt payments by your monthly take-home pay.
  • The resulting percentage is your debt-to-income ratio.

The Consumer Credit Counseling Service recommends keeping your debt-to-income ratio below 15 percent. If your ratio is lower than 20 percent, chances are you will be granted your car loan, but you should do more figuring to determine if you really can afford it.

Also, take in consideration the addition of costs of ownership such as insurance, gas, plates, and maintenance.

Down payment on your car or truck purchase is another important point. Your net trade-in value is considered the down payment, but it may be to your benefit to put cash down also. This will lower your monthly payments and will put that cash to better use if your interest return is less than the rate on the loan.

You know the details of your expenses and budget better than anyone else. So be careful about accepting higher limits too quickly. After all, a new car should compliment your lifestyle, not compromise it.

Leasing Versus Buying

If you're not sure which is best for you, here are some facts that might help you make that decision.

Leasing is paying for the use of a car, rather than actually paying for the car itself. The bottom line is that your lease payments cover the cost of the vehicle's depreciation over the length of the term of the lease instead of the vehicle's purchase price. You are expected to maintain the car during the lease, but when the lease is over you can either return the car or exercise the option to purchase it.

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