There
is no bigger part of the new car buying process that
can go more wrong for the buyer, and more right for
the dealer. Financing can suck the money from
your wallet and put it into the dealer's quicker than
you can say "APR" three times in a row !
I typically
recommend getting a loan from a credit union or your
regular bank, and staying away from financing your
new car at the dealer. However with low/no APR
deals popping up all over the place, it's getting
attractive to look at the dealer for financing.
Be aware, the low/no APR deals are only for you folks
with near perfect credit. If your credit is
not stellar, then shop the rates at your local bank
or credit union before going into the dealer.
If I
get one thing across to you let it be this... Most
dealers make a bonus if they can talk you into a higher
interest rate. The actual lender may be willing
to finance you at a lower rate, but you will never
know if the dealer tries to talk you into a higher
rate. Ask to see the approval documentation
from the lender so you know you are getting the best
interest rate and the dealer is not padding the deal.
Let's take
a look at the difference between leasing and buying...
Ownership:
LEASING: You do not own the vehicle.
You get to use it but must return it at the end of
the lease unless you choose to buy it.
BUYING: You own the vehicle and get
to keep it at the end of the financing term.
Up-front costs:
LEASING: Up-front costs may include
the first month's payment, a refundable security deposit,
a capitalized cost reduction (like a down payment),
taxes, registration and other fees, and other charges.
BUYING: Up-front costs include the
cash price or a down payment, taxes, registration
and other fees, and other charges.
Monthly payments:
LEASING: Monthly lease payments are
usually lower than monthly loan payments because you
are paying only for the vehicle's depreciation during
the lease term, plus rent charges (like interest),
taxes, and fees.
BUYING: Monthly loan payments are
usually higher than monthly lease payments because
you are paying for the entire purchase price of the
vehicle, plus interest and other finance charges,
taxes, and fees.
Early termination:
LEASING: You are responsible for any
early termination charges if you end the lease early.
BUYING: You are responsible for any
pay-off amount if you end the loan early.
Vehicle return:
LEASING: You may return the vehicle
at lease end, pay any end-of-lease costs, and “walk
away.”
BUYING: You may have to sell or trade
the vehicle when you decide you want a different vehicle.
Future value:
LEASING: The lessor has the risk of
the future market value of the vehicle.
BUYING: You have the risk of the vehicle's
market value when you trade or sell it.
Mileage:
LEASING: Most leases limit the number
of miles you may drive (often 12,000-15,000 per year).
You can negotiate a higher mileage limit and pay a
higher monthly payment. You will likely have to pay
charges for exceeding those limits if you return the
vehicle.
BUYING: You may drive as many miles
as you want, but higher mileage will lower the vehicle's
trade-in or resale value.
Excess wear:
LEASING: Most leases limit wear to
the vehicle during the lease term. You will likely
have to pay extra charges for exceeding those limits
if you return the vehicle.
BUYING: There are no limits or charges
for excessive wear to the vehicle, but excessive wear
will lower the vehicle's trade-in or resale value.
End of term:
LEASING: At the end of the lease (typically
2-4 years), you may have a new payment either to finance
the purchase of the existing vehicle or to lease another
vehicle.
BUYING: At the end of the loan term
(typically 4-6 years), you have no further loan payments.
Consider all the costs involved
in a lease.
At the beginning of the lease, you may have to pay
your first monthly payment; a refundable security
deposit or your last monthly payment; other fees for
licenses, registration, and title; a capitalized cost
reduction (like a down payment); an acquisition fee
(also called a processing or assignment fee); freight
or destination charges; and state or local taxes.
During the lease, you will have to
pay your monthly payment; any additional taxes not
included in the payment such as sales, use, and personal
property taxes; insurance premiums; ongoing maintenance
costs; and any fees for late payment. You'll also
have to pay for safety and emissions inspections and
any traffic tickets. If you end your lease early,
you may have to pay substantial early termination
charges.
At the end of the lease, if you don't
buy the vehicle, you may have to pay a disposition
fee and charges for excess miles and excess wear.
Negotiating a lease, this is what can be negotiated
with the dealer...
- the agreed-upon value of the vehicle--a
lower value can reduce your monthly payment
- up-front payments, including the
capitalized cost reduction
- the length of the lease
- the monthly lease payment
- any end-of-lease fees and charges
- the mileage allowed and per-mile
charges for excess miles
- the option to purchase either at
lease end or earlier
- whether your lease includes “gap”
coverage, which protects you if the vehicle is stolen
or totaled in an accident.
If you have decided to buy instead
of lease, let's look at the process.
1. Get Your Credit Report: Before
you walk into the dealership and apply for financing
you need to know what your credit record is like.
Too many dealers will trick you into believing your
credit report is less than stellar and will try to
slide in a higher interest rate.
2. Decide where you will finance:
It's convenient to finance through the dealer but
many times you are not getting the best interest rate.
Consider the following sources:
Credit Unions: If you belong to one,
you can usually get much lower interest rates. Credit
Unions are there to serve you, not themselves.
Online Lenders: With lower overhead,
online lenders can offer you better rates than a dealer.
I recommend using Car.com for your online lending
needs. They shop your application to numerous online
lenders and find you the best rates.
3. Check the fine print: Make sure
you will not be penalized for paying off the loan
early. Also check the minimum collision coverage required.
If you are used to carrying a $1000 deductible and
the lender requires a $500 deductible, you could be
in for a surprise when the bill shows up.
4. If you decide to go to the dealer
to arrange the financing, request to see the approval
letter from the lending institution. Dealers can mark
up the interest rates and earn commission by doing
this little trick.
5. Before signing: Check the fine
print ! Always keep a calculator with you and double
check everything.