Monthly Archives: March 2018

Lease Vs Puchase On A New Car

There are several factors to consider before deciding whether to buy or lease a vehicle. Driving habits, buying habits, manufacturer incentives, and vehicle rates and depreciation are the primary factors, but there are others as well.

— Driving Habits —

This is the easiest qualifier. Every car finance company, whether it is the manufacturer’s division such as Ford Motor Credit, a specialty lender like Wells Fargo, or a personal bank or credit, has multiple lease and purchase programs available.

Determine your mileage habits, taking into consideration travel plans, potential job or housing changes, and anything else that may make you drive more or less than you normally do. Once you have an idea of how many miles you will likely be driving over the length of the lease, find out if there are plans to match.

If there is a good chance that you will go over in miles, leasing is not the best option. If you will not be going over, continue to the next factor. Driving 10k miles per year does not automatically make leasing the best option.

— Buying Habits —

Over 65% of Americans between 25-45 years of age change vehicles every 2-4 years. The finance companies know this, which is why most offer lease terms that fall into this range. Some go longer.

Leasing is freedom and prison at the same time. While it allows a consumer the opportunity to get out of one low mile vehicle and into a no mile vehicle, it also locks a person into the terms. Once you’re in, it’s hard and/or expensive to get out. Trading is difficult until a few months before the term ends.

If you are sure you want to change vehicles every 2-3 years (and you have leasing “driving habits”) then leasing is potentially the better option. If you keep your cars for four years or longer, that doesn’t necessarily mean you shouldn’t lease.

When GM started their SmartBuy program, it took a lot of heat from consumer advocacy groups because it was a lease that seemed like a purchase. Terms such as “balloon payment” and “due at Lease End” became synonymous with “SCAM”.

In reality, this is a method of “buying” more vehicle than a person’s payment range would normally dictate. As an example, a recent promotion by Lincoln offered their luxury MKZ for $0 down, $0 due at signing, $0 first payment, and $399 a month payments on a 39 month lease.

A standard loan of 72 months at a low 2.9% on a $35,000 vehicle would be over $500 per month. If a consumer wanted to purchase this MKZ atĀ Tulsa LincolnĀ and had great credit but didn’t like the high payments, they could lease it for 39 months. After the lease, they could finance the balance and still be under $400 per month.

This is NOT the recommended way, but for those with “steak taste on a burger budget” it is an option.

— Manufacturer Incentives —

The vast majority of automotive lenders like to keep a mix of leases and purchases out on the road. Too many leases cause the manufacturer to lose more money when the vehicles are turned in because residual values are normally higher than actual cash values. In other words, what the manufacturer thought a vehicle should be worth in 3 years (residual value) is normally higher than what they actually bring at the program car auctions (actual cash value).

Still, they want a certain number of leased cars on the road for several reasons. In the long run, leases bring the manufacturers and their dealerships more money because of higher owner loyalty, improved likelihood of proper vehicle servicing, and a better chance of selling more expensive, higher profit vehicles.

All of this computes into a nice ebb and flow of incentives offered. There will normally be incentives for both financing and leasing a vehicle, but whichever way the finance companies want consumers to lean for that particular time period is the option that will have the better incentive. Look at both options and see which feels better.

— Vehicle Rates and Residuals —

Some vehicles are good for leasing. Others are not. The two most important factors (and often the hardest to understand) are rates and residuals.

The lower the rate, the less an owner will end up paying. Seems simple, but when comparing different makes and models, a lower rate might also signify a lower residual. If this is the case, any savings a consumer gets from the rate are wiped out by the lower residual.

The residual value in a lease equation is the amount that the finance company believes the vehicle will be worth at the end of the lease if it is within the mile limit, mechanically cared for and without damages. The higher the residual, the lower the amount financed, and thus, the lower the payments.

For example, if a $30,000 vehicle has a 50% residual for three years, the buyer is basically getting a $15,000/36 month loan. If the residual for that vehicle was 40%, the buyer would be paying for 60% during that time, so they would be getting an $18,000/36 month loan.

It is sometimes difficult to follow the math, but the concept is simple. The higher the residual, the less a buyer will be paying during the lease. Consumers who are true “leasers” who will be switching vehicles at the end of the term should look for higher residuals. People who are leasing to get the low payments and plan on getting a loan for the balance at the end of the lease shouldn’t be too concerned about residuals because whether they’re paying 60% now, 40% later or 50/50% now/later, they are still paying for 100% of the car in the long run.

Car Buying Tips

Some very wealthy people have never bought a new car in their lives. With so many super-low mile used cars out there, what’s the point of paying thousands more for a few less miles?

Then there are those who refuse to buy used, regardless of their financial situation. They would rather buy a brand new beater than get into a high quality vehicle that has had someone else behind the wheel.

After all is said and done, it really comes down to personality and goals when deciding between new and used cars. The 20/20 rule applies – 20 percent of people will never buy new, while 20% of people will never buy used. For the other 60%, this article is for you.

Selection

Between huge dealer inventories, the option of dealers trading and bringing in a vehicle from another dealership, and custom ordering becoming more popular, the selection factor goes hands down to new cars.

For popular vehicles, it is definitely possible to find a used car. The internet makes it simple for someone to search around the corner or across the country for that perfect used car. Still, it’s nothing compared the options available with new.

Price Matters

Even in today’s ultra-competitive new vehicle market where MSRP has been replaced by Invoice as the starting mark for price negotiations, a car still loses 10%-20% or more of its value the moment it hits the street.

Low mile used cars a year or two old can be dramatically less expensive than its brand new counterpart. There are exceptions – Honda, for example, tends to lose less off the top because they rarely have rebates and their reputation is very strong.

Other than the few exceptions, a used car is normally dramatically cheaper than a new one.

Interest Rate

For the 95% of us who borrow money and make car payments, interest rate becomes an issue. New cars are less of a risk for the lender, so their bank rates are lower than on a used car. The manufacturer loan divisions make it even more appealing to buy new with 0% financing available on most vehicles at some point after their release.

Two or three points against a $30,000 loan can mean big money on a 4-6 year note. For shorter loans, the rate is less important.

Loan Term

While the rate is normally lower for new cars, the term is usually longer. A prudent buyer can get the same payments on a used car that they can get on a new car, only for fewer payments.

There is also the option of extending the term on a used car purchase to the length of a new car. Vehicles last longer. There are loan companies that will extend a note to 6 or more years on a 3 year old vehicle because they expect it to still be running after that amount of time. In those cases, the payments can be much cheaper than on a new car.

Peace of Mind

Going back to the new car smell, the new car knowledge is very appealing. A rough driver who doesn’t do car maintenance and likes to drive 90 mph in their Kia Rio can really hurt a vehicle, even with low miles. When you buy a used car, you take the risk of getting that car and not knowing the bad things it went through for months until it starts having problems prematurely.

Equity

Vehicles are not like homes. They depreciate, regardless of what happens to the market. Some depreciate less than others, but no matter what, every day makes it worth less than the day before.

Used cars have already absorbed the initial depreciation and are closer to leveling out on the depreciation scale. The first 2-4 years of a vehicle’s life result in a loss of up to 75% of its original value. In the first couple of years of a standard 5 year note, it is nearly impossible to trade in a vehicle that was bought new with no money down and not have negative equity.

With used cars, it is still difficult, but not nearly as hard as it is with new cars.

Final Thoughts

How often you trade, how well you negotiate, and the make and model of the vehicle you buy will determine a lot regarding the pros and cons of a new or used vehicle. Prudent buyers will seek out dealerships such as Used Cars Oklahoma City to help determine which is best.

New and Used Car Buying Tips

Did you know that experts claim that female buyers pay, on average, $1200 more than men for the purchase of an automobile? That’s about 5% more on the average vehicle investment! Consumer financial powerhouse USAA commissioned a 2010 survey to get to the bottom of this issue. The findings found that women who did not like to negotiate at the car lot gave two primary reasons for their reluctance:

[+] Feeling Intimidated

[+] Not Feeling Confident

As evidenced by the $1000+ difference in what you may end up paying for your next care, it would be well worth your while to read up on some negotiating tips geared toward female purchasers. First off, you want to know as much as possible about the vehicle or range of vehicles in which you are interested. Technical expertise in the automotive arena will boost your confidence, while demonstrating to your salesperson that you are really know what you are talking about. You also want to have at least one “back-up” vehicle in mind – a car, truck, or SUV which you would be willing to buy if pricing on your primary model is not working out. This also gives you alternatives – a key to negotiating effectively.

You not only want to know what the tech-related specifics of the vehicle you have in mind, you also want to know just how much it is worth. There are virtually countless places online to research not only vehicle MSRP, but how much people in your zip code have actually been paying for the specific car or truck you have in mind.

Brush up on your negotiating skills. First off, you want go to the dealership having already determined what positives you can bring to the table, such as good credit, a big down payment, being ready to buy today, etc. Knowing and playing upon these factors will up your leveraging power. You also want to be comfortable with walking away. That way you can’t be so easily pressured into a deal. If the dealer is not cooperating, be ready to walk. You can also research the inventory of other nearby car lots. That way you can show the dealer that you have somewhere else to turn if he or she is not ready to negotiate with you.

Another great strategy is to apply for and arrange your financing package ahead of time. If you already have your auto loan in hand, the dealer has fewer opportunities to take advantage of you. Your stock will also be up, negotiation-wise. That’s because you already have the funds available to make your purchase. Remember that they want to make the sale as much, if not more, than you want to buy your car.

Used Car Selling Tips

The internet has become a great place to buy and sell new and used automobiles. In a matter of minutes, you can advertise your vehicle for sale by posting your ad on various paid and free classified ad systems. Compared to traditional newspaper advertising, selling your car on the Internet can be easy, fast and can save you money as well.

The following are a few simple tips for selling your car on the Internet:

Research your selling price
Part of a successful sale involves a reasonable price which buyers will be interested in submitting an offer on. If your sale price is too high, buyers may not be interested in contacting you at all. Initially start by researching your local newspaper for prices for your used vehicle, you may be surprised to find a wide range in price for the particular make and model of your vehicle.

Create an email selling account

At times you may receive junk emails, you may want to separate your sales inquiries from your personal or business email account. Visit Google Mail, Yahoo Mail or Hotmail for a free email account where you can receiving inquiries and emails about the items you are selling.

Photo ads sell

People online want to see what they are buying. People look for color, condition and any additional accessories that your vehicle may have. Although you may not need to post all your car or truck photos, take as many pictures of your car in case a buyer wants to see more photos of your sales item.

Mention that it is a private sale or for sale by owner in your ad

Some people like to deal with people direct and may be apprehensive if they know they will be dealing with a dealership. Not to say anything about automotive dealerships, but it is simply a matter of personal choice.

Selling a car privetly also ensures that you will get the best possible price and the buyer will get the best possible deal.

Get your car ready

Thoroughly clean your car or truck inside and out. Buyers love a clean vehicle and it makes a great impression. Consider spending some money on having it professionally detailed.

Provide lot’s of information in your ad

Buyers want to know everything about your car: when was it built, are you the original owner, how many miles or kilometers on the vehicle, has the engine been rebuilt and more. Listing lot’s of information in your ad shows that you pay attention to detail and that you have nothing to hide when selling your car.

If you have photos of the vehicle posted on a website somewhere, provide a link to that site. Indicate to the potential buyer how to contact you; by email or by phone. Optional is to list where the car is located so that people can come and view it at their leisure. Some auto sellers even indicate what their viewing times are: mornings, evenings, weekends.

Don’t be affraid to put “OBO” (or best offer) in your ad. This tells car buyers that you are willing to negotiate the price of the vehicle and that you are ready to sell your car.

Advertise your car on internet car classified systems

There are many paid and free car classified ad system on the Internet where you can post your used car ad to. Some will accept photos while others simply offer a text ad. Initially start out by searching for local ads within your city or state. National ad systems will provide you with a larger coverage, but may also charge your for your listing.

Secure Financing Before Going to the Dealership

The finance department is one of the last areas where a car dealership can make good, consistent money from their customers. Some dealerships even sell vehicles at cost without fuss or haggling in hopes that their efforts will be rewarded in the finance department.

Consumers can secure their financing online through various 3rd party lending services. They can go to the manufacturer websites and get pre-approved. Some car dealer websites even offer 30-second pre-approvals through their own finance department.

Whether a customer has great credit or poor credit, they should all go through the process of securing their financing before going to see the dealership. It isn’t that customers can get better rates at their bank or 3rd party lender than they can at the dealership. On the contrary, car dealers can normally offer a lower rate 9 out of 10 times, regardless of credit.

The issue is, if a customer doesn’t know the rate they qualify for, a dealership is not obligated to offer the lowest possible rate. Knowing the available rates at a consumer’s particular credit condition is an important first step to getting the best rate available.

Most banks and credit unions have a set rate based upon credit. Two people with similar credit scores and other factors such as job time, gross income, outgoing expenses, time of residency, and automotive credit history will get the same rate from a bank or credit union. At dealerships, sometimes the rate is the same, sometimes it isn’t. If the finance manager at a dealership feels that they can make a little more money off the financing by charging a little higher on the rate, they are welcome to do so.

Several Automotive Websites have ways for customers to be able to get their information to the credit department and get a decision very quickly. Dealerships such as Nebraska Honda Dealers and New Hampshire Saturn Dealers go a step further with their 30-second credit application.

Once a consumer knows their rate from outside their dealer, they should apply at their dealership, just to put their information on file and have it ready. It is much easier to fill out credit online than it is having a salesperson asking questions and writing freehand.

From there, the time at the dealership is easy. Find the car, go to finance (who should already have your credit information), let them offer you a rate, and then tell them the rate you can get elsewhere if their rate isn’t lower. Almost 90% of the time, they have a lender who can beat any rate that a consumer brings them.