It is important to understand how leasing or buying a new car will impact your finances such as your monthly budget, debt ratios and credit score.
by Sarita Harbour | May 7, 2013
Most drivers are so excited about buying a new car, they don't realize how it impacts their finances. Understanding how leasing or buying a car affects your monthly budget, debt ratios and credit score can help you make the right financial choices.
When you buy a car, you might pay for it with savings, borrowed money or a combination of both. You might consider making as much of a down payment as possible to keep your loan amount down. The less money borrowed, the less total interest you'll have to pay.
loans and your credit
Getting a car lease or car loan may be your first credit experience. It's important to know that making your car payments in full and on time helps establish a good credit history. Car leases or loans are liabilities, and your payments are included in monthly debt ratios. If you apply for a mortgage, student loan, or credit card while making car payments, you may qualify for a lower amount than if you didn't have them.
Leasing and depreciation
When leasing a vehicle, you pay for the reduction in the car's value that happens during the time you're using it. When the term is over, you don't own the vehicle, but you'll usually have the option to buy it at an agreed-upon price.