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1) What is the difference between a loan and a lease? Under a regular finance arrangement you purchase the vehicle, and take a loan for the difference between the purchase price and your down payment. The monthly payments repay the loan amount (with interest), and upon making the final payment you own the vehicle. With a lease, you make arrangements to pay for only a portion of the vehicle, not the whole thing. The amount you pay is determined by subtracting the estimated future value of the vehicle (called the residual value - the residual value is determined by tracking the resale value of the vehicle through major national auction houses) from the selling price, and then dividing that figure by the number of months in the lease (includes interest). The selling price of the vehicle should be the same whether you finance, lease or pay cash. 2) Benefits of leasing. · Lower payments Because you are only paying for the portion of the vehicle that you actually use, your monthly payments will be lower. · A new vehicle more often · Lower maintenance and repair costs Your vehicle will typically be under warranty for almost the entire lease term, meaning that you will more than likely not be paying for any repairs. Additionally, maintenance costs will be reduced as you will not usually reach mileages that require lots of services. · Lower tax outlay You only pay sales tax on the monthly payment (and down payment if any), not the entire amount of the vehicle. · Guaranteed future value You don’t have to worry about the resale value of your vehicle. If your car depreciates more than the guaranteed future value in your lease contract at full term, you can turn it in and walk away. But if it’s worth more, you can buy it and keep it or resell it. A lease gives you options. 3) Benefits of financing · If you usually keep your vehicle for 5 years or more, then traditional financing may be your best option to get the most value out of the vehicle for the money spent.. · There are no restrictions on altering the vehicle’s interior or exterior to suit your taste. · There are no restrictions whatsoever on the mileage you drive.
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