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Buying or Leasing Your Next Car

Which is better, buying or leasing my next car?

It depends on factors such as 1) what kind of deal you can make with the dealership, 2) the typical mileage you put on your car, 3) how much you wear down a car, and 4) the primary use for the car.

To determine whether leasing or buying is best, compare the costs and other issues involved in a lease or purchase. The following factors should be considered:

  • Beginning costs
  • Continual costs
  • Total costs
  • Is there a possibility of deduction of any of the costs due to the car being used for business
  • How important is it to have ownership of the car

It depends on factors such as 1) what kind of deal you can make with the dealership, 2) the typical mileage you put on your car...

When buying a car, how can I get the "best buy"?

You first need to decide on the type, size and options of the car you would like (such as manual, automatic windows, airbags).

You then need to decide what the car dealer has to pay for the car of your choice - the "invoice cost". The difference between the sticker price and the invoice price can be negotiated.

You can obtain this information two different ways. The best way is to look at an auto pricing service supplied by a consumer group or an auto magazine. For instance, Consumer Reports New Car Price Service (800-933-5555), at a price of $12 per model will give you details of the invoice price and the sticker price that can adjusted for options or rebates as well as tell you how to use the data for negotiating. This is the best way because it gives you the most recent information.

Another way is to use pricing guides that can be found on the Internet. Two popular sites are Intellichoice (www.intellichoice.com) or Edmund's New Car Prices (www.edmunds.com). You may also be able to obtain these books at the library and they will give you an idea about the information that you need instead of exact data.

If you have a trade-in, you will want to find the value of that car too. You can use the N.A.D.A. Official Used Car Guide (check your local library or www.nada.org) to look up your used car.

Now it's time to begin negotiating with dealers. Because you know the invoice price, you can use that information to bargain for the lowest mark-up from the dealer's cost.

An amount like $300 to $500 above the dealer's cost is a sensible mark-up, unless the car you want to buy is either difficult to get or very popular.

Any attempts by the dealership to sell you rustproofing, undercoating, or other extras should be refused. You may want to invest in an extended warranty, depending on the model's repair history.

You first need to decide on the type, size and options of the car you would like...

How can I negotiate for a new car?

Keep in mind that you are not just looking for a car. You also have to select a dealer with whom you will continue a long-term relationship with, as you usually have to service your car at the dealership. If you aren't comfortable with the dealership, go somewhere else.

A good time to try for a good bargain on a car is the last Saturday of September, October, or December.

Before you start looking for a car, learn about the financing options. You can be prepared when the dealer starts to discuss financing if you are aware of what the banks are charging.

Some points you will want to highlight during the negotiations are:

  • You are aware of the exact model and options you want
  • You are shopping around and will get quotes from other dealerships
  • You will not be talking about financing or trade-ins until the dealer has given an offer and make sure not to mention a trade-in until the price has been negotiated.
  • You are fully aware of the invoice cost of the car

Lastly, go to other dealerships even if you think you have a great price.

Keep in mind that you are not just looking for a car. You also have to select a dealer with whom you will continue a long-term relationship with...

Do I negotiate on a car lease the same as I could on a car purchase?

Like a loan, the monthly lease payment is reliant on the term of the lease, the implied interest rate and the initial "purchase price" of the car. The "lease-end" or "residual" value varies from a loan, but is still important. This is the value that is expected at the end of the lease term.

You are paying the difference between the initial purchase price and the residual value in a lease. The lowest purchase price should be negotiated, which will lower the cost of leasing. If you don't intend to buy the car at the end of the lease term and it is closed-end, you might want to negotiate a higher residual value. Make sure that your expected mileage during the lease aligns with the allowed mileage in the agreement. If it doesn't, you may pay significant penalties when you turn the vehicle back in to the dealer.

Like a loan, the monthly lease payment is reliant on the term of the lease, the implied interest rate and the initial "purchase price" of the car...

How does an auto lease function?

Lease arrangements come in two different types: open-end or "finance" and closed-end or "walk-away." This is how they work:

Open-End: The Risk of Depreciated Value Falls on You

At the end of the lease, the customer accepts the risk that the car will have a particular value or "estimate residual value" at the end of the lease. Due to this, the monthly payment is lower.

At the end of the lease and your return of the car, it will be appraised. If the appraised value of the car is equal to at least the estimated residual value stated in the agreement, it will not be necessary to pay anything. With certain contracts, it is possible to receive a refund if the appraised value is lower than the residual value, although, you might have to pay part or all of the difference.

Closed-End: The Risk of Depreciated Value Falls onto the Dealer

At the end of the closed-end lease, the car is returned to the dealership and you simply walk away. It must be returned with only normal wear and tear, and with less than the mileage limit that is stated in the lease. The monthly payment is higher than an open-end lease because the dealer bears the risk that the car's value with decrease by the end of the lease.

Lease arrangements come in two different types: open-end or "finance" and closed-end or "walk-away"...

     
     
     

 

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