It’s not a new concept, but it's gaining in popularity. We’re talking about leasing a car, rather than buying it.
First of all, when it comes to a car, next to your home, it's the biggest purchase you will make. But maybe purchasing isn't the way to go. Let's talk about leasing.
"Leasing is similar to that of renting whereby you pay for the use of a vehicle during the period of time you have it. However, it's based on a slightly different concept in that you pay for the depreciation cost of the vehicle,” said Mike Waring of Central Pacific Bank.
All right, what exactly is depreciation?
"Depreciation is essentially the difference between the vehicle's original value and the value of the vehicle at lease end or the residual value. So, generally speaking the smaller the amount of the depreciation, the lower the payments, the better the deal,” said Waring.
Of course, lease payments will depend on the manufacturer, make and model of the car. Renting or buying a car are basically the same as renting or buying a house. If you are renting, you never own the house.
"With a lease, you always have a payment, you never own it. With a purchase, you essentially pay for the entire cost of the car. Once you're done paying for it, it's yours, you can do whatever you want. With a lease, you're essentially making payments during that period of time. The benefit, however, after two or three years or however long the lease is, you can simply walk away and get another lease,” said Waring.
One other thing you should know if you're thinking about leasing a car. You are responsible for any damage that happens to the car, whether it's your fault or another driver. Some lease agreements offer free maintenance for the life of the agreement. And some lease agreements change as the mileage on the car increases.
On the purchase side, is it a good idea to use a home equity loan to buy a car?
"Home equity loans are popular ways to finance a vehicle. Interest rates are generally lower than auto loan rates and in some cases, it may be tax deductible, the interest,” said Waring.
