Fixing your annual costs by renting a car for up to two or three years is becoming more and more popular, according to Ling Valentine (34), the extrovert Chinese immigrant owner of LINGsCARS.com.
This method of financing a brand new car, (commonly referred to by the catch-all phrase "leasing") avoids increasing interest rates and APRs, by fixing the monthly rental of a new car in a simple, clear figure. This monthly payment can then be compared on a like-for-like basis across a wide range of new cars, something that is almost impossible with the many different "offers" surrounding traditional finance.
"The monthly cost depends on several factors", says Ling, from her Gateshead 'World Headquarters'. "First I take the discounted price of the new cars I get from ordering in bulk, often from dealers who need to shift volume to hit targets. Then, I check around a dozen different contract-hire finance providers, who will each value the residual value differently, guessing what the car will be worth to them at the end of the lease term. Finally, I package this together, making sure my own overheads are dramatically less than those of other providers, including the franchised car dealers and car companies themselves. I do not have dozens of expensive glass-palace showrooms to run."
The result is that LINGsCARS provides, at the touch of a button on a web-browser, a price list of over 400 different brand-new makes and models of cars, all with an easily comparable monthly rental figure. Ling even does something which is unheard of in the new car trade, and lists every car in price order, allowing visitors to her website the ability to compare cars from a ?111 a month Chevrolet Matiz to a ?735 a month Range Rover. No car dealer in the UK allows that "street-price" comparison, across such a wide range. She lists prices based on annual mileages of 10, 15 and 20,000 miles, suiting most peoples' use; "You are rewarded for driving less, a very Green way of doing things", she claims.
New car dealerships often require you to put down a large deposit and then take out a finance deal on a brand new car, or the alternative is to take a loan and write a large cheque. Ling's argument is why tie up large amounts of your capital or borrowings in a car? "I only ask for three-months rentals as an initial payment, followed by a direct debit payment every month. For a nice new car costing around ?300 a month, such as a SAAB 9-5, or a Kia Sorento 4x4, or an Alfa GT or the latest Honda CRV, that means you only have ?900 invested, and you are paying the rest month-by-month as you use the car. At the end of the agreement, the car is simply returned to the finance company, you can't keep it. You have just paid for the use of the car. It is impossible to fall into negative equity, and there is no lump sum to pay at the end."
"I would suggest you put your spare cash into your house or your savings, not into a big deposit on a new car, which is a depreciating asset", says Ling.
The necessary oil and filter servicing is cheap, Ling insists, as the cars are brand new and never fall due for an MOT and are unlikely to need major items like brakes and tyres. She says road tax is fully included for the term; "I deliver these new cars to your door, all you have to do is insure them, service them and put fuel in them".
Breakdowns, which are unlikely on new cars, are fully covered by the manufacturers? warranty. Some AA or RAC type cover is included for at least the first year. A big benefit is safety; ?new cars have the highest safety ratings and the latest safety equipment built in, an important consideration for families.
Talking about traditional new car ownership, the AA says: "As most owners come to pay their motoring bills, each is more expensive than last year's ? undermining claims that cars are getting cheaper to run."
Ling insists she can change that; "As long as you are credit-worthy and you look after the car like it is your own, you can release the equity in your current car and get into the cycle of changing your car for a brand-new one. You can do this very cheaply, every two or three years", Ling says.
It is no wonder that in 2007, LINGsCARS rented over ?28m of new cars, and that Ling has been awarded "Best non-franchise motor industry website of the year*". In this Beijing Olympic year, this is one Chinese who is already winning medals ? in the UK! * Automotive Management Awards, Feb 2007.
So you find you have managed to scrimp and save some money for a down payment on a house, have paid off your vehicle, and you also have found you have enough surplus monthly income for a new car payment. If you are in this position, and your vehicle can still manage to incur a few thousand more miles consider holding off on the purchase of a new car. You may ask, “Why is this advisable?” The reason is that most first-time homebuyers, and some veterans, do not know that your new car payment will directly affect your debt-to-income ratio. Suppose for illustration sake, you had purchased the new car and you contact a loan officer to get pre-qualified for a mortgage loan. You state your desired price and how much you have managed to scrimp and save for the down payment. You provide your income and may even supply pay stubs and W2 forms. The loan officer methodically crunches the numbers (by telephone, in person, or even over the internet). And the loan officer promptly lets you know that you would have qualified for a higher home sales price if you didn’t have “that expensive car payment’! You see, when determining your ability to qualify for a mortgage, in addition to your three-digit credit score a lender looks at what is called your "debt-to-income" ratio. A debt-to-income ratio is the percentage of your gross monthly income (before taxes) that you spend on debt. This will include your monthly housing costs, including principal, interest, taxes, insurance, and homeowner’s association fees, if any. It will also include your monthly consumer debt, including credit cards, student loans, installment debt, and of course, car payments. Your debt-to-income ratio is the amount of debt you have in the form of mortgages, car loans, student loans and credit card debt, as compared to your overall income.
You might ask, “Why is this number so important? I make a good income and I’m never late on my monthly payments, well only occasionally.” What it comes down to is the amount of debt you have to pay on a monthly basis relative to your monthly income. You may bring in a hefty paycheck but have equally hefty debt payments which could be a problem. Or you may make a modest income but have low monthly debt payments. Your ability to qualify for a mortgage loan is unique to your particular financial situation. That’s why lenders look at this number just as closely as your FICO score.
To calculate your debt-to-income ratio, add up all of your monthly debt obligations—often called recurring debt—including your mortgage (principal, interest, taxes, and insurance) and home equity loan payments, car loans, student loans, your minimum monthly payments on any credit card debt, and any other recurring loan payments you might have. Do not include expenses such as groceries, utilities and gas. Take this total and divide it by your gross income from all sources. If you want to try your hand at a debt-to-income ratio calculator, go to www.bankrate.com, which has a great online tool to help you figure out your debt-to-income ratio.
Let’s say you and your spouse together earn $60,000 per year or $5,000 per month. Your total mortgage payment is $1,100 your car loan totals $400, your minimum credit card payments are $150 and your student loans add up to $100. That equals a recurring debt of $1,750 a month. Divide the $1,750 by $5,000 and you’ll find your DTI is 35 percent.
In general, you’ll want to keep that number below 36 percent—a threshold that loan officers and credit card issuers often use as a factor when they determine how much they’re willing to lend you. If you go higher than the above mentioned number, you may be able to qualify for a loan but usually at higher interest rates and therefore higher monthly payments. The higher your DTI number, the riskier it is for lenders to offer you loans—and the more they’ll make you pay for them.
Looking back at our example, suppose you earn $5000 a month and you have a car payment of $400. Using an interest rate of 8.0%, you would qualify for a mortgage loan that was approximately $55,000 less than if you did not have that new car payment. Are you seeing the importance of holding off on that new car? So, if you have not already bought a new car, and your old one can still take a few thousand more miles, try to qualify for the home first which as an appreciating asset will bring you great tax savings, as well as a place to live in. You can forgo that “new car smell” for another time!
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Both Robert Thomson & Nef Cortez 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.
Robert Thomson has sinced written about articles on various topics from Personal Desktop, Finances and Pets. Ling is one of the UK's leading and experts.. Robert Thomson's top article generates over 450000 views. to your Favourites.
Nef Cortez has sinced written about articles on various topics from Home Buyers Guide, Gardening and Foreclosure Help. Nef Cortez has been a licensed real estate broker and has held various positions in the real estate industry for over 25 years. Visit his website at