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Leasing vs. Buying

November 4, 2008 by Eric Rosenberg

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At some point, you are probably going to need a new car. For young people, this is usually the first major purchase (thousands of dollars) that you will make. You have three options: Buy in cash, lease, or buy with a loan.

The best option is to just buy the car outright in cash. This will be the least expensive option, as there is no interest or fees associated with the purchase. This, however, may require you buy a less expensive car. It is up to you whether or not this is worthwhile.

Leasing is another option. Do not lease a car. I will say that one again to make sure you heard it. Do not lease a car! Leasing is renting. You have no ownership in the car. At the end of the lease, you have nothing and have to give the car back. Don’t pay someone to borrow a car.

The third option is to take out a loan. Loans require a down payment and a good credit score. I have a loan on my current car. Many people hate debt, that is okay. If you feel that way, don’t take a car loan. I, however, could not afford a nice car at the time, but could afford a big chunk of it. In addition, I took a longer term loan to lower my payments. Even though I have low payments, I usually overpay my loan. I paid double my monthly payment for a while, and now pay about $80 extra per month. These accelerated payments help me lower my interest payments over the life of the loan. I am about a year ahead on a five year loan (one year in).

So, you really have two options because you don’t lease. You can pay for a car in cash or take out a loan. Cash is an obvious first choice. Loans do have a perk though. Installment loans are great for your credit score when you pay on time. My score has gone way up since I started with my car loan. However, there are interest payments.

In the end, it is up to you. Either way, make sure it is a car you can afford. If you don’t make a lot, don’t buy a super expensive car. People do not become wealthy from spending money.

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Filed Under: Banking, Budgeting, Debt Management

About Eric Rosenberg

Eric is the founder and editor of Personal Profitability. He left his corporate finance job in 2016 to take his online side hustle full-time and now earns a six-figure online income.

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I started a little side hustle blog in 2008, and left my full-time day job as a Senior Financial Analyst to turn my side hustle into a full-time gig. Learn how I did it so you can build your side hustle. It all starts with the first dollar.

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