It’s amazing. I operate a web site that provides objective consumer information about car leasing and I’m frequently amazed at the misconceptions or, should I say, uninformed conclusions that many people have about leasing. Let’s look at some of them now.
1) Leasing is a scam by dealers - Not true. Car dealers didn’t invent leasing. Leasing is a valid method of financing capital equipment that has been used for over a hundred years in business. However, it has only been within the last 25 years that leasing has become popular with automotive consumers. Since it is not well understood by most consumers, dealers oftentimes encourage leasing when it isn’t the right option in a particular situation. The key lesson here is that, if you don’t understand leasing, stay away from it.
#1 New or Used
The average new car costs more than double what the average used car does. (The Kelley Blue Book pegs the average new car price in 2005 at $26,100 and the average used car price at $13,000). It’s not surprising, then, that used cars outsell new cars three-to-one.
Buying a car can be quite an experience.
We have purchased one used and one new car in the past year. The used car purchase was a breeze. We knew the approximate blue book value and were able to get the vehicle way below that value. The salesman was fair and never tried to lie to us. The dealership was easy to work with. It was the best transaction I’ve ever had in purchasing a vehicle. That’s what works. I’ll buy my next one from them.
Here are some facts and a little knowledge of where automotive financial trends are taken us.
The average Automobile price tag or MSRP (Manufactures Suggested Retail Price) today is much higher than ever before. In 1989 any car over $12,500 was considered by the IRS to be a luxury automobile. A financed car at the selling price of $10,000 and an average interest rate of 10% , in that day and time, for a term of 48 mos. was $250 per month. With the ever growing price tag of new and pre-owned vehicles today. The average person financing a car at 7% interest can not afford to finance these high ticket items. And with inflation of the all mighty dollar surpassing the depreciation of these assets, they must and need to lease. The average price MSRP today is over $20,000++ with a 48mo term retail finance payment growing over $500 per month. It is stated throughout Industry and Economic articles, that nearly 50% of all cars today with a price tag of over $25,000 are leased and within the near future with the rising cost of technology to build bigger, better, faster and while trying to meet government and the economical needs of motorist, the price tags for automobiles will soar beyond our imagination.
You want to buy a car. The first things you need to know is the type of car you want. If the reasons to buy the car are perfectly valid the next thing would be to see it you have the cash to purchase the car. If you are a first timer into the world of finance then you may be taken for a ride. If you are a student or have no established credit history then the barriers to your car ownership are still more, unless you have enough cash to make an outright purchase.
One Time Expenses Budget versus style should be balanced when you cannot afford a luxury segment vehicle. • The rate of your car depends on the variety of car you want. Budget models range between $12,000 and $20,000. Sports car and other vehicles may cost up to $ 50,000 and more. • The cost of a decent stereo system, interior systems like leather seating etc. will only drive up the costs.
OK, you’ve finally gotten through the front end part of buying your car. You have worked hard done some tough negotiating and feel like you have negotiated a good and fair deal on your car purchase and trade-in. Now it’s time to head into the dealer’s F&I (finance and insurance) department and go through the formality of signing the financing paper work on the back end of the deal.
You may have noticed a couple of terms: front end and back end. I used these terms to illustrate a point to you. From a car dealer perspective there are two distinct parts (profit centers) to each deal. The front end of the deal is the new car price, your trade in, any dealer add on’s that they got you to buy with your new car, etc. All of this, most everyone is indeed familiar with. The second part of the deal, the back end, is not a place to let your guard down. The back end is the F&I department. The F&I manager is every bit as responsible for making sales numbers and profit margins as everyone else at the dealership and they are sales people NOT financial advisers and their purpose is to help maximize the profit on the deal.