For many people getting an auto loan can be easy and tempting. Show steady employment and sufficient income to cover your loan payment, and you will be enjoying even a brand-new car in almost no time. And if you finance your car on an extended period like 48 or 72 months, you monthly payment may be lower than any car lease out there.

So is that a good argument that you should buy a car instead of leasing? Not really. There are many risks and downsides that come along with taking an auto loan that must be considered — alongside with the benefits of driving a nicer car.

Here are a few points to consider.

Terms of the loans

Many banks have prepayment penalties and even may require you to pay part of the remaining interest amount if you settle your loan early. That means if you lose your job shortly after taking the loan or you decide to relocate for whatever reason, you will need to be able to sell the car and pay off the loan along with the interest.

Because cars typically depreciate faster than long-term loans are paid off, you may end up in a situation where you cannot even break even. The moral of this example is: If you’re in a volatile job situation or you think you may not be able to stick around until the loan is paid off, do not rush to buy a car. If you’re willing to take your chances, be realistic about the fact that you may not be making much if any money from selling the car eventually.

Needless to say, you must shop around for the best rates and terms, even if that requires you to change banks where your payroll is deposited. Walking into a loan with significant penalties because it is available and easy to obtain is a poor strategy.

Maintenance and insurance costs

If you’re buying a new car, it would probably be under warranty for several years. But if you’re buying a used car or if you’re taking out a loan that runs longer than the warranty period, you must consider the maintenance, repair and insurance costs.

Your loan monthly payment may be low compared to a lease car, but to get a full picture of your costs, you must take all of those other expenses into account. In addition, consider your options in case of the car breaks down. A car-lease company is likely to provide you with a replacement almost instantly. But if you own your car, you will need to pay extra for your insurance provider to cover this situation.

Commitment

The decision to lease or buy a car goes back to your current life situation and how committed you’re to your current job and location. Even if a car payment may be lower than leasing a car, getting out of a car loan can be costly. So if you see yourself in a stable job with no plans to relocate for several, go ahead and shop around for a good loan that has minimal costs if you decide to settle it early.

If you’re new to your job or your living situation is evolving, it may be wiser to lease a car for a while and avoid many hassles until things stabilise.

One exception to this rule is, of course, if you can pay cash for your new car — whether new or used. So if you have some extra cash and you’re willing to buy an affordable car, this could be a good option where you’ll avoid the hefty interest amount added to the car price, and getting out of owning this car will be as easy as finding a buyer.

 

To buy or to lease

Consider your job stability

Think of added costs of insurance and repair

Shop for good rates and terms

Check out prepayment penalties

 

The writer, a former Gulf News Business Features Editor, is a Seattle-based editor.