- General Questions about Financing
- Understanding Rates, Co-Signers, and Down Payments
- Tell Me More about Leases
- Tell Me More about Loans
- The Worst Investment You Can Make...
- General Questions about Financing - back to list
- What is the difference between a loan and a lease?
- When you obtain a loan, your down payment and monthly payment go to the total purchase price. When the term of the loan is complete and the loan is paid in full, you own the vehicle. A lease is similar to a balloon finance agreement where you pay interest on the entire purchase price of the vehicle but you are only paying a portion of the principal balance. At the end of the term of the lease you may return the vehicle, buy the vehicle, sell the vehicle or trade in the vehicle
- How do I choose between a loan or a lease?
- The key question to answer is how long you want to keep the vehicle. If you want to keep it six years or longer then financing will likely make more economic sense. Generally speaking, pre-owned vehicles, other than manufacturer’s certified pre-owned, are better finance than leased. Other than those considerations, you are likely better off leasing than financing.
To make a more informed decision you should also do a finance versus lease cost analysis as follows:
Finance: Add the sum of your money down, sales tax, monthly payments X number of months financed and anticipated cost of maintenance and repairs for the term the vehicle will be out of warranty.
Lease: Add the sum of your money down, sales tax on the money down, monthly payments X the number of month of the lease.
Now, compare the two figures. If the finance calculation is twice the sum of the lease calculation you will be able to drive two new vehicles on a lease for what it would cost you to own just one on a finance agreement.
- Understanding Rates, Co-Signers, and Down Payments - back to list
- What rates do you offer?
- Our dealership works with several financing institutions to bring you competitive rates and terms on vehicle financing. Our dealership offers flexible rates, terms, and payments so that you can obtain the loan or lease that fits you best. The rate in your individual financing package is influenced by a number of factors including your credit history, the term of your loan or lease, the amount financed, and the residual value of the vehicle you lease. Financing through our dealership lets you enjoy a quick, competitive, and straightforward way of getting your new vehicle.
- Do I need a co-signer?
- Not necessarily. If your application requires a co-signer, we will inform you during your application process.
- How do I make my down payment?
- You can use a money order, bank check or cashier's check (made out to our dealership), or cash.
- Can I finance taxes, registration, and other transaction expenses?
- Absolutely.
- Can I include the cost of other products, such as extended service contracts, credit insurance and accessories in the amount that I finance or lease?
- Yes, again. If you are interested in one of our products and would like to include its cost in your finance option, just ask one of our finance representatives to arrange that for you.
- Tell Me More about Leases - back to list
- What is a lease?
- A lease is exactly like a balloon finance contract where you pay interest on the entire amount borrowed but pay down only a portion of the amount borrowed (the principal) as a result you will have lower monthly payments or, put another way, you can drive a better car for less money.
The differences between a lease and a balloon finance contract are: 1) with a lease, title is held in the name of the funding source 2) the “balloon” or in lease language the “residual value” is established by the funding source based upon the anticipated depreciation of that particular vehicle over the term of the lease, assuming a certain number of miles to be driven and reasonable wear and tear and 3) unlike a balloon finance where you are responsible to pay off the balloon amount at the end of the term, in a lease the funding institution assumes the responsibility for the amount of principal not paid. Typically, they will recover that amount by reselling the vehicle at auction. - Explain the leasing terminology
- As leasing is technically different than buying or financing, different terminology is used to describe the transaction. The most important concepts are capitalized cost, residual value, and money factor.
- capitalized cost This is the price you paid for the vehicle plus an acquisition fee charged by the funding institution less and money or trade equity put down hence capitalized cost reduction
- Residual value This is the amount that the funding source believes that the vehicle will be worth at the end of the term based upon the year, make, model of the vehicle, reasonable wear and tear and a certain number of miles driven.
- Money factor The money factor is simply another way of calculating interest. It is arrived at by taking the average amount borrowed during the term of the lease and converting the annual percentage rate into a monthly percentage rate expressed as a decimal. To determine the actual rate of interest you are paying on a lease multiply the money factor by 2400.
- Tell Me More about Loans - back to list
- What is a loan?
- A loan is a specific amount of money that you borrow from a lending institution in order to purchase a vehicle. You then make a commitment to make monthly payments for a specific period of time (called a "term") until the full amount borrowed is repaid.
- How does a loan work?
- The amount that you borrow and the remaining balance during the life of the loan are referred to as the principal. The principal can be paid off at any time prior to maturity, but as long as it is outstanding the lending institution can charge a prearranged interest rate that is included in your monthly payment. Until the principal is paid in full, the lending institution retains the title to the vehicle as security on the loan. When the principal is paid, the title is returned to you, and the vehicle is yours.
- What if I drive a lot of miles, should I still lease?
- Perhaps one of the greatest myths about leasing is that it doesn’t make financial sense to lease if you drive a lot of miles. The reality is that you pay for miles regardless of whether you lease or finance or purchase outright and you pay for miles in the same way, i.e. the depreciation of the vehicle.
The real cost of a vehicle when purchased or finance is what you pay for it up front plus its operating cost over time less what you sell it or trade it for at the end. Many times, the cost per mile is less if you lease than the cost impact on the trade or resale value on a finance or outright purchase.
There are other considerations as well. People who do a lot of miles need to get into new vehicles sooner. A lease will allow them to do just that. What is going to be the cost of service and repairs on a high mile purchased vehicle? How much lower will your payment be on a lease versus a finance contract? If your vehicle gets into an accident on a purchased or finance vehicle it will result in increased depreciation even if you have it repaired properly. This is not true when you lease. There is no additional cost impact. Many times high mileage drivers have “business use” of the vehicle as defined by the IRS. If you have “business use” you should be able to reduce your taxable income by a much higher percentage of your actual out of pocket expense if you lease than if you finance or purchase outright.
If you are a high mileage driver, have one of our Sales Consultants do a financial comparison for you. We think you’ll be surprised.
- The Worst Investment You Can Make... - back to list
- is to borrow money to purchase a depreciating asset.
Occasionally, one of our customers will say, "I'm seriously thinking about purchasing a car from your dealership, but frankly I'm confused. I've always been taught that the smart way to buy a new car is to pay cash and then keep the car for a number of years to make that investment pay off. But your sales consultant is now telling me something different. I just don't understand!"
The fact is, conventional wisdom is partially correct; the worst way to buy a new vehicle is take out a conventional loan. Borrowing money on a depreciating asset is not an actual investment at all. Investments provide returns while an automobile is, truthfully, a consumable expense. You purchase a car to use it, not to resell it at a higher value. This makes a car paid for in cash just a large prepaid expense - not an investment at all! The question, then, for the knowledgeable vehicle buyer to ask is, "How do I minimize this expense?" J. Paul Getty, the famous oil industrialist, put it best. He said, “Buy what appreciates, lease what depreciates.”
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