Before you buy or lease a car:
- Research your prospective automobile. Identify your transportation needs and pick an appropriate vehicle.
- Identify how much you can afford to spend on the car. Take into account car payments, repairs and maintenance, gas prices, inspections, insurance rates and license and registration costs for the life of the vehicle.
- Call your banker and ask how much money they would be willing to loan you for a car. You can gain a great deal of knowledge from a financial professional just by discussing what they believe you can afford.
- Consider purchasing a two to three year-old used vehicle to avoid the depreciation costs associated with new vehicles. New cars lose up to 20% of their value once you drive them off the lot.
- Know the true value of the car you want. The price you see at the dealership is the sticker price. Find out a new car’s invoice price (the amount the dealer paid the manufacturer) at www.edmunds.com
- If you can afford to, pay cash.
Leasing a Car:
What is a lease?
- A lease is a contract between a lessor (car company) and a lessee (borrower/customer). The lessor uses the vehicle for a specified amount of time and makes a specified monthly payment. You do not own the car, you borrow it.
What are the benefits of leasing?
- Leasing generally offers monthly payments that are lower than financing (purchase) payments.
- Leasing can be beneficial if you want the newest model car, plan on getting a new car every two to three years, plan to drive fewer miles than the lease limit and plan to take very good care of the car.
If you choose to lease, consider the following:
- You do not own the vehicle; you return it at the end of the lease unless you have the option to buy it.
- You may face charges for higher mileage at the end of your lease.
- You may have to pay to have the car reconditioned if the dealer decides there is excess wear and tear on it when you turn it in.
- You may have to pay early-termination fees and penalties if you need to get out of the lease before the end of the term.
Buying a Car:
What are the benefits of buying a car?
- There are no limits or charges for use of the vehicle, but excessive wear and high mileage will lower the car’s trade-in or resale value.
- If you finance the purchase, you own the vehicle at the end of the loan term (typically four to six years).
- If you plan on driving the car for more than four years you are probably better off buying.
If you choose to buy a car consider the following:
- You are responsible for any pay-off amount if you end a loan early or the vehicle will be repossessed.
- Up-front costs include the down payment, taxes and registration as well as other fees and charges.
- You may have to handle selling or trading-in the vehicle when you decide to purchase a different vehicle.
- You risk only getting the current market value of the vehicle when you choose to trade or sell it.
What You Should Know About Getting a Loan:
- Get a copy of your credit report. Your score will generally determine the amount and the rate of the loan offered.
- Identify various loan sources including banks, savings and loans, credit unions and sales finance companies. You can find competitive bank rates, fees and other conditions for new and used auto loans at the New York State Banking Department’s Website: www.banking.state.ny.us/intrate.htm
- Compare the APR (annual percentage rate) that each of the sources will charge for the loan and other costs associated with a loan, such as loan insurance and loan processing costs. Shop around for the best loan you can find and get pre-approved.
- Try not to commit to a longer loan term, it may mean lower payments, but it also means more payments. Borrow for the shortest period possible and you will reduce the overall cost of the loan.
- Insist that the loan contract give you the option of making payments early and that the payments will be applied to the loan principle with no penalty if you pay off the loan early.
- Ask about Gap Coverage, or insurance that pays the difference between what you owe on your lease or loan and what the vehicle is actually worth in case of destruction of the vehicle or theft. If you don’t have Gap Insurance and your vehicle is destroyed or stolen, you will still be responsible for the interest on your loan for the remainder of your lease/loan agreement and for the difference between the book value of the car and the amount of the loan that is outstanding.
- If you decide to finance your car through the dealer and they give you a good deal on the price of the vehicle they may try to make up the difference on the loan rate.
- Be certain to read and understand all fine print contained in the loan contract.
Tips on Leasing a Car:
- Negotiate the mileage limit, down payment, and purchase-option price.
- Look for cars that don’t depreciate faster than average.
- Avoid leases that extend beyond the car’s factory warranty, if you can.
- Buy extra miles up front if you expect to run over the standard allotment.
- Make sure your trade-in is deducted from the car’s capitalized cost (the vehicle price plus fees and taxes).
- After the lease has ended, if you choose to buy, try to bargain down the purchase price.
- Make sure the sales tax is included in your monthly payment or you will have to pay the tax when the lease is up.
Tips on buying a Car:
- Negotiate or ‘haggle’ the price of the car with the dealer. When you negotiate, get as close to the manufacturers suggested retail price (MSRP) as possible. A dealer will sometimes negotiate to within $500.00 of the MSRP, especially if the manufacturer is giving them a special deal if they sell the car.
- Manufacturers will often offer dealers special incentives, sales contests and ‘holdbacks’ (based on a percentage of the dealerships total sales) to dealers for selling particular cars. Find the holdback percentage of the car you want at www.Edmunds.com and factor it into your negotiations.
- You may want to trade in an old car to save money on a new one. Check the Blue Book price for your car at www.kbb.com and compare the wholesale versus retail price of your car. If there is a difference of $1,000 – $2,000 between those two figures, you may want to try selling your car instead.
- Order your new car if you don’t see what you want on the dealer’s lot. This may cause a delay, but cars on the lot may have options you don’t want that will increase the price of the car. If you do decide to buy off the lot, negotiate. If a dealer is trying to get rid of inventory, you may be able to get a good deal.
- Make as large a down payment as possible. This will reduce the amount you will need to borrow and will enable you to acquire better financing terms.
Check with the National Highway Traffic & Safety Administration to find out about your potential car’s safety history, any Technical Service Bulletins on the brand and other pertinent information at http://www.nhtsa.dot.gov/