Understanding Vehicle Financing (Part 2) 

In Part 1 of this article, we reviewed the basics of vehicle financing, including the research you’ll want to do before visiting the dealership. 

What About a Co-Signer?

A creditor might allow a co-signer to finance the contract with you in order to make up for any deficiencies in your credit history. A co-signer assumes equal responsibility for the contract, and the account history will be reflected on the co-signer’s credit history as well. For this reason, you should exercise caution if asked to co-sign for someone else.

Should I Lease a Vehicle?

If you are considering leasing, there are several things to keep in mind: 

• Monthly lease payments are usually lower than payments on the purchase of the same vehicle because you are paying for the vehicle’s expected depreciation during the lease term, plus a rent charge, taxes, and fees. But at the end of a lease, you must return the vehicle unless the lease lets you buy it and you agree to the purchase costs and terms.
• When you lease a vehicle, you have the right to use it for a defined time period. At lease end, you may return the vehicle, pay any end-of-lease fees and charges, and “walk away.” Or, may buy the vehicle for the additional agreed-upon price if you have a purchase option, which is a typical provision in lease contracts. Keep in mind you will be responsible for a potentially substantial early termination charge if you end the lease early.
• Another important consideration is the mileage limit (typically 15,000 or fewer per year). You can negotiate a higher mileage limit, but expect an increased monthly payment since the vehicle’s depreciation will be greater during your lease term. If you exceed the mileage limit set in the lease agreement, you’ll have to pay additional charges when you return the vehicle.
• When you lease, you are also responsible for excess wear and damage, and missing equipment. You must also service the vehicle in accordance with the manufacturer’s recommendations.
• Finally, you will have to maintain insurance that meets the leasing company’s standards. Be sure to find out the cost of this insurance and factor it into the total monthly cost when evaluating if you can afford the car.