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.