Drivers in search of low payments are finding car leasing more attractive, according to a new report from credit bureau Experian. The average monthly lease payment is $84 less than the typical loan payment on a new car, while the cost of loans for new and used cars has steadily been rising.
Leases made up nearly 27% of new financing transactions in the third quarter, Experian reported, their largest share since the company began publicly disclosing this data in 2006. At the same time last year, leases made up 24.7% of new car financing. The cost of a lease hasn’t changed much: The average monthly payment in the third quarter this year was $398, up $1 from last year.
While monthly lease payments are cheaper than taking out loans, some conditions can make them more expensive in the long run. For example, leases often have mileage caps and require drivers to pay when they’re exceeded. Such terms mean leasing isn’t for everyone, so be sure to do your homework.
If leasing isn’t the best fit, you may need to finance your new car purchase. To that end, Experian reports that a record high (86.6%) of new-car purchases required financing in the third quarter, while the average monthly payment on new car loans reached $482, up $12 from 2014. The average monthly payment on a used car was $361, a $3 increase from last year.
New car loans and leases tend to be for consumers with good credit. (The average credit score for a new car loan was 710, its lowest point since the third quarter of 2007 SOURCE?). Having bad credit doesn’t mean that a loan is out of the question, but be wary of high interest rates, which often come as a penalty. Before you shop around, you’ll need to know your credit standing. You can get a free credit report summary from Credit.com every 30 days to see where you stand.
More on Auto Loans:
- Are There Car Loans for People With Bad Credit?
- What to Do If You Can’t Make Your Car Payments
- Top 5 Worst Car Buying Mistakes