We all get a hankering every now and then to buy a new car. However, if you are trying to build your credit, you might look at your choices differently. When building your credit, you have two great choices, to either lease a car or finance a car that you will eventually own. Below you will learn the pros and cons of each option:
Why You Should Lease:
- You Will Have a Lower Payment: In general, leasing a car will mean a lower monthly payment. If your budget is tight, this could make a big difference.
- You Don’t Drive That Much: If you drive right up to or less than 12,000 miles a year, leasing is a great option.
- You Can Afford a Newer/Better Car: By leasing, you can afford a brand or year model car you might not be able to afford otherwise.
- It Still Counts Towards Your Credit: You might wonder if leasing a car will do anything for you when it comes to building up your credit. It can, simply because the lease is considered an installment loan. Therefore, if you keep up-to-date on payments, it will improve your credit.
Why Leasing Might Not Be For You:
- Doesn’t Always Make a Huge Difference in Credit: Although we just mentioned that leasing will help build credit that comes with a caveat. If you trade in your leased car every 12-24 months, it won’t help your credit score as much as other options.
- It Can Cost More to Insure: Many leases demand gap insurance, which means your insurance costs could be more for a leased car than for one you buy.
Why You Should Buy New:
- You Drive More Than 12,000 Miles a Year: If you drive more than the limit placed on your leased vehicle, you would be much better off just buying a new car.
- You Have Something to Show: After you have paid your car off, you will have a car to show for it. In other words, the money you spend monthly in the form of a car payment will yield something you can then sell or trade in. Of course, leasing doesn’t give you this option.
- It Builds Even More Credit: We mentioned above that leasing can build credit to some extent, and that’s true. However, you can make more impact on your credit score by taking out a loan on a car. This is because most car loans are from 3-5 years. The longer a line of credit is open, the more impact it will have on your credit score. When you lease, you don’t typically keep the car that long, so buying a car is a more effective way to build your credit.
Why Buying a New Car Might Not be For You:
- You Will be Responsible for Maintenance: If you lease a car, your maintenance costs are often covered. Of course, you might get a good warranty with a new car, but in general, the responsibility for keeping a car up and running falls more on you when you buy.
Contact Build My Scores today for more information about building your credit score.