|Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.|
Advice on Buying and Leasing a Car
The one critical piece advice that all car buyers should heed is to have your financing lined up before you shop. Cash is king on the new car lot and it not only can put you in a better bargaining position, it can save you a lot of money over the more expensive financing available through the dealer. There are several ways to get your hands on a lump sum of cash at a far less cost than dealer financing. There are also several ways to avoid the pitfalls in auto financing.
The car dealer: Last year 80% of new car buyers financed their car purchase through the car dealer. While dealers can be a viable source of car financing, it would be very important to carefully scrutinize their financing offer before signing your papers. First, car dealers are in business to make a profit on everything they do including car financing. The important thing to know is that dealers don’t originate car loans. They work with a lender who gives them a loan at, say, 4% and then turn around and extend the same loan for 7%. If that’s not bad enough, when you finance a car through the dealer, you then have to deal with their finance person who is going to try to talk you into buying a warranty or some undercoating protection. Forget about it.
Go to the bank: Banks can offer competitive auto financing terms. Of course, the rate you are offered will depend on your credit standing Credit unions tend to offer the best terms, so if you don’t belong to one, it may be worth joining. All of the major banks and credit unions have websites on which you can compare loan rates and apply for loans. Internet-only financing companies, such as ING also offer very competitive auto loan terms, and you can apply and qualify within minutes online.
Leasing: Leasing a car may be advantageous if you only plan to keep your car for three to five years. Because you are, in essence, only financing the use of the car for short period of time, the payments are usually lower than if you financed the purchase of the car. While it’s possible to get into a new car for just a couple of hundred dollars a month, it’s important to carefully review your lease terms. Most leases are calculated based on mileage use. It’s not unusual to see a lease offer for a low monthly payment; however, it is usually based on 12,000 mile annual usage. If you exceed the number of miles allowed, you end up writing a big check at the end of the lease. It is often cheaper to purchase additional miles in your lease up front. It will increase your lease payment, but it will save you money in the long run.
Buying at the Right Time Can Save You Money
Everyone seems to have an opinion about the best time to buy a new car – the best day of the month, the best month of the year, even the best hour of the day. The consensus seems to be that buying a car near the end of the month is the best time because the sales people are anxious to meet their sales quotas. While that is true, there’s more to it than that, and understanding what really motivates the car dealers can help strengthen your negotiating position. Sales quotas are important to the sales people, but bonuses are crucial to the car dealers.
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