In this article we will explore these options and hopefully make the financial decision easier.
Option 1 ? Financing through a dealer
Car dealers are in the business of helping you purchase a car, from finding your "dream" car to providing financing. Dealers will help you with the financing by asking you to fill out a credit application. Depending on your credit history and down payment amount, the dealership will negotiate a loan for you with their finance company for the amount of years (3 to 5 years) or payment range that you have requested.
The benefit to obtaining financing through a dealership is the convenience of walking into the dealership, finding a car, purchasing it and driving it home the same day even if the financial institutions are closed! This benefit however allows the dealership to charge a higher interest rate. The interest rate percentage depends upon your credit score.
During the duration of your loan, the lender will hold onto the title for the car. Once the loan is paid in full the title will be transferred to you. You will then have full ownership of your car.
Option 2 ? Lease option
Leasing can be a great way to get a new car. A few things to think about when considering leasing a car:
1. How long do you want to keep your new car? 2. How many miles per year do you drive your car? 3. How much of a down payment do you want to make?
Once you have considered those questions, the dealer will have you fill out a credit application. The dealer will look for the best lease option based on your credit score, the length of your lease and how much you want to pay up front. Most experts recommend 3-year leases and the least amount required for a down payment. Most lease contracts have yearly mileage restrictions of about 12,000 miles per year. If your mileage calculation is higher, negotiate a contract with a higher mileage allowance. This will probably increase your monthly payment, but in the long run will prevent overage charges at the end of your lease.
The benefits to leasing are:
1. Lower monthly payments 2. Little or no down payment 3. Low maintenance costs (New cars are covered under a manufactures warrantee the first 3 years)
At the end of the lease you have the choice of purchasing the car for the value specified in your contract (called residual value) or lease another new car. Don't forget that you can always try negotiating a lower buying price.
My mother has leased cars, but this last car she leased she decided to purchase at the end of her lease period. She negotiated a very good price for the car with the dealership, below the stated value in the contract. So don't be afraid to negotiate on a leased car. They say in this world everything is negotiable!
If you opt to return the car, you may receive your security deposit back if the car is in excellent condition. If the car has excessive wear and tear the dealer has the option of charging you a fee.
These are all factors you must consider when leasing a car.
Option 3 ? Purchase car for cash
The third option is to purchase your new car outright after negotiating your best deal! This is the easiest and quickest way to close a sale.
I know that in this day and age everyone is scrimping to save enough to buy the necessities of life. So many people do not have the money to buy a car outright.
While the potential that certain vehicles have to continue to run long after others have been mourned and forgotten is clearly indicative of a superior car, what does it really mean to you? To put it another way, do you care how many miles it runs after you have left it behind? How is that high-school girlfriend of yours doing today? Don't know? Exactly.
The affect of depreciation on a car deal can not and should not be ignored, but crunching numbers for days or weeks will not yield a voila! moment, as each situation is completely unique. We can only decide what is best for our family at the time of purchase, use our best information and instincts to make our decisions, then move on and enjoy the car. A thousand dollars over 60 months is less than twenty bucks a month. Don't let that relatively insignificant amount make you crazy!
One way to get on top of depreciation is to look for cars that have an unfair, unrealistic depreciation rate. A brand like Hyundai, which struggled with quality issues for many years but which has made decent cars for some time now, may not outgrow it's rep for years, so these cars can be good bargains. The Audi A6 is every bit the car that the Mercedes E-Class , the BMW 5-Series, and the Lexus ES are, but there is just a bit less demand, a bit less flash...maybe it can be said that the depreciation rate is often simply the confluence of demand and cachet.
If you are planning to purchase a new car, you are agreeing to being eaten alive by depreciation. Your only defense position is to buy a car that depreciates more slowly than it's competition, assuming they are priced the same to begin with. While many of us intend to drive our vehicles out to the bitter end, very few of us do.
One way to really make depreciation work for you is to buy a vehicle with about 2 ½ to 3 years and 30000 miles on it. After this point, the price will not fall as quickly as it had been, and the vehicle will be beginning to show some signs of aging. And, as it is for all of us, it is all downhill from there!
So...let's be most concerned with the next 40,000 miles, let's buy a car we will love, let's pay the amount we can afford, and then let's celebrate by opening a short Guinness. The beer, not the book!
Both .johnsmith. & Peter Robinson are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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