Are monthly payments necessary?
In today's economy most people are not in the position to pay cash for a
new or pre-owned vehicle. We can help you establish a payment strategy to
purchase your new vehicle. Two options exist, loan or lease.
What's the difference between a loan and a lease?
When you finance a vehicle or take out a loan the initial down payment and
principal on the loan cover the total cost of the vehicle including tax and
license.
Lease payments, however, apply only towards your use of the vehicle. The
total sum of payments covers the vehicle's depreciation over the time you
drive your new car. This is typically less than the overall price you pay when
you finance a vehicle.
What is transfer of ownership and when does this happen?
When your vehicle is paid in full, the loan ends and full ownership is
transferred to you. Your lender will send your title that had been held during
the finance contract.
When a lease period ends, you must turn in the vehicle to the lender, unless
the lender offers to sell the vehicle afterwards. During the entire lease period
the lender maintains ownership and allows you to use the car; much like a
long term rental. Ownership can be transferred only if you chose to purchase
the vehicle after the lease ends.
How much should you use for a down payment?
Your down payment amount may range between 10 to 20 percent of the
vehicle's total cost; you may use more or less for your down payment, but it
will affect your monthly payment.
The less money you use for your down payment the higher your monthly
payment. On the other hand, the more money you use for your down
payment the less you'll owe towards your monthly payment.
Can extra fees and charges be financed?
Yes, registration, taxes, extended service plans and other supplemental
charges may be included in your financing arrangement.
Which option makes the most sense?
Only you can answer this question as everyone's vehicle needs differ. If
you like the idea of driving a more expensive vehicle for a smaller monthly
payment, leasing is a great option. However, if eventually owning the car is
important to you, financing with a loan arrangement is the way to go.
Loan FAQ
What determines your finance loan rate?
The finance loan rate depends on your individual credit history, the amount
borrowed, the length of the loan, and the make/model of the vehicle you
wish to finance. Paying more money initially lowers the amount borrowed
from the lender thus reducing your payments; it may also reduce your
finance loan rate.
What are finance loan time frames?
In the past a typical loan period has been five years with an annual
percentage rate around 8 percent. In today's economic environment
loan terms have ranged from 3 years to 7 years. Loan percentage
rates average up to 12 percent, again largely depending on credit
history.
Are loans available for pre-owned vehicles?
Yes, although they tend to function somewhat differently from new car loans.
The down payment and interest rate can be higher based on your credit
history, the make/model of the vehicle you are purchasing and the length of
the loan.
What are the advantages of a loan?
Loans are also sensible for those who like to customize their vehicle, like
keeping their vehicle for long periods of time or plan to re-sell their vehicle to
help recover the cost of ownership.
Lease FAQ
How are monthly lease rates determined?
In formulating a lease arrangement, a lender calculates the extent to which
the vehicle will depreciate over the lease term and compare it against the
cost of financing the vehicle during that same time period.
Three key elements:
- First, the adjusted capitalized cost is determined. This number represents the real purchase price after down payment, incentive discounts, additional fees and trade-in value are determined and then added or deducted from the capitalized (actual) cost.
- Second, the residual value must be determined. This is done by estimating the value of the vehicle at your lease end. Once this is determined it is then subtracted from the adjusted capitalized cost to yield a depreciation figure. That figure, or residual value, depends on the length of your lease arrangement, estimated lease end mileage and make/model of your vehicle.
- Finally, a lender determines the money factor, a number that correlates with the cost of borrowing money towards your vehicle use during the lease period. While these terms may seem unfamiliar, the Federal Reserve Board now requires dealers to publicize all leases terms including down payment amounts, length of lease, residual values and money factors.
The lease end purchase price is largely based on the residual value
determined at the beginning of the lease term. To purchase a vehicle at
the end of the lease requires you to pay the fixed residual value plus any
applicable taxes or fees.
What are the restrictions of driving a leased vehicle?
Lenders want their vehicles returned in saleable low-mileage conditions
therefore mileage terms are established at the beginning of the lease
arrangement. A rule of thumb on figuring average annual mileage under
ordinary driving conditions is between 12,000 and 15,000 miles.
Beyond the established mileage limit, fees may accrue on a per-mile basis,
usually in the range of $0.10 to $0.25 per mile. So if most of your driving is
local, leasing makes sense. However, if you drive 500 or more miles a week,
definitely look into a financing loan arrangement.
What are the advantages of a lease?
Leasing ensures that you'll always drive a new vehicle and you typically won't
have to pay for large repair bills that come with long term ownership.
Please note this is for general informational purposes only.
