"Bait and switch", "adjusted capitalized costs", "residual values", "money factors": in the car financing arena you'll face confusing jargon and the potential for misunderstanding. Knowledge is your best defense.
Financing versus Leasing: The Basics
When you finance the purchase of a car, you typically make a down payment and borrow the rest. As long as you make your payments, you are the rightful owner of the car. With a lease, you don't pay for 100 percent of the car; you only pay for what you use, as measured by depreciation. So you never actually own the car.
For example, if a $10,000 car will be valued at $6,000 at the end of four years (residual value = $6,000), the $4,000 difference represents the depreciation cost. In this example, $4,000 of value will be "used up" over four years. With a lease, you pay for the depreciation, certain fees, plus interest on the full value of the car. You never own the vehicle, the leasing company does, but you have the right to use the vehicle during the lease term. So at the end of the lease, if you'd like to own the vehicle, you'll need to pay off the residual value.
Whether leasing or taking out a car loan, you are creating a new financial obligation in your life. So if you are overburdened with other debts, consider driving a used vehicle rather than a new one. It's usually a much less expensive alternative.
Financing the right way:
Always try to prearrange financing through a bank or credit union before you visit a dealer to negotiate price. Arrange for financing based on the MSRP (full retail "sticker" price) of the car or type of car (midsize or subcompact, for example) you'd like. Should you ultimately buy the car for less, your car payments will drop accordingly.
These online sites offer car loans and loan info:
CarFinance.com, brought to you by E-Loan; or call 1 800-598-3272
PeopleFirst.com offers good deals for people with excellent credit.
Microsoft Carpoint brings you advice on shopping for a loan.
If you insist on financing the car through the dealer, or can't qualify elsewhere for a bank loan, do NOT share this personal information with the dealer until after you have established the purchase price. Should the dealer learn that you are desperate for a lease or a loan, your bargaining power will be severely damaged and you will overpay for the car.
Another dealer ploy: should you fail to first negotiate a set price, the dealer will sell you "affordable" monthly payments that will continue far longer than they should. And don't let the salesperson know your financing limit. According to Grady Cash, author of Conquer the 7 Deadly Money Mistakes, the salesperson will then try to price the car so as to hit that limit. If they ask about your financing limit, indicate that financing isn't a problem. Say, "Let's get back to discussing the purchase price."
If you have already secured a good financing deal from your bank or credit union, there's no harm in asking the dealer to try and beat the terms with a better offer. Be sure to get everything in writing, cautions Anderson and Palmer of Edmunds.com. Then either analyze the terms yourself or have an independent expert go over the terms, such as Fighting Chance's James Bragg.
No comments:
Post a Comment