The lowest overall cost is to buy a car and keep it for a long time. But leasing usually has lower monthly costs. And leasing an E.V. may come with a tax break.
Most people have two options when they want a new car: buy it with a traditional loan or lease it.
Either can make sense, depending on your personal situation.
If you’re looking for the lowest overall cost over the longer term, buying a car with a loan, and then driving it for a while debt free after you finish making payments, is usually the best option.
But if low monthly payments and a smaller down payment are a priority, a lease may be worth considering. And if you’re willing to try an electric vehicle or a plug-in hybrid, tax breaks available for leased models may make deals more affordable. Almost half of new E.V.s were acquired with leases in the second quarter of this year, up from around a fourth a year earlier, according to data from Experian.
The Federal Reserve’s decision on Wednesday to cut its benchmark rate by half a point indirectly affects rates on car loans, which are also influenced by factors like the borrower’s credit score and the level of loan delinquencies. The average interest rate for a new-car loan in August was 7.1 percent, and 11.3 percent for a used-car loan, according to the automotive site Edmunds. “It will take a number of additional rate cuts before the cumulative effect becomes material for car buyers,” said Greg McBride, chief financial analyst at Bankrate.
Paying cash for your car is, of course, interest free. But while car prices have eased somewhat, they remain high. The average transaction price in July was around $48,000 for a new car, and about $25,000 for a used car, according to Kelly Blue Book, part of Cox Automotive. Most people who buy a new automobile and many who buy one used get some kind of financing.
With a traditional loan, you make a down payment and then pay off the debt with fixed monthly payments over time. (The average new-car loan term is about six years.) When the loan is repaid, you can keep the car and drive it payment free or trade it in and get credit for its value toward your next car purchase.
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