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Auto Finance 101

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Types Of Financing: Loan vs Lease

Over the past few years there has been a virtual revolution in the vehicle finance market. It once was that the best deal around involved a deposit of as much as 25% with the balance payable over three to four years.

Today, finance packages have become the driving force behind the sale of new vehicles and Barbadians have been snapping up the deals. Provided you qualify, you can walk into a dealership with a job letter, Barbados ID card, three months bank statements along with the first month's deposit and get a brand new vehicle. Better still, some cars come with one or two years "free" (yeah, right) insurance. Right now it seems easier to get a new car than a used one.

If you don't like the balloon payment at the end of your loan period you may want to opt for a lease arrangement. This option suits companies and business people who can write off all or part of the lease payments as a business expense. Persons who just want to change their car every few years without the hassle of disposing of the old one may also like the lease option, which is offered by all the finance companies.

Pros & Cons

If you opt for a new car loan, ownership is nice but be prepared for the balloon payment at the end of the contract. It's the balloon payment that makes the monthly payments so affordable, you know. Also, this is happening at precisely the time when your not so new vehicle isn't worth quite so much anymore and your (yes, it's yours now) maintenance costs are beginning to increase. Try this little exercise: multiply the new price of your car by 0.30 to get the approximate paper value after 84 months. Now look at that balloon payment again. Something to think about.So much to consider....

Lessees don't usually have balloon payments or loss of value issues to worry about. What they do have to watch is the condition in which the lease vehicle is returned. In most contracts any deterioration beyond normal wear and tear may be at the lessee's expense. In some contracts the vehicle's end-of-lease mileage may also be an issue so be careful.

In the end, nothing beats the feeling you get when you bring home a brand new car; just make sure you think it through first.

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