BUYING & LEASING CARS

Transcription

BUYING & LEASING
CARS
Presented by
Cheryl Hardison
SOM Office of Financial Aid
March 11, 2010
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BUYING A CAR IN TODAY’S
ECONOMY
These days, “great deals” are being
offered on big
big--ticket items all over the
country. If you have both the NEED and
the MONEY to afford such items in
today’s market, you may want to go for
it.
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BUYING A CAR IN TODAY’S
ECONOMY con’t.
You should weigh the pros and cons of different types of
cars.

How much can I afford monthly?
Should I buy new or used?
Should I lease or buy?
Do I need GAP Insurance?
What kind of incentives & rebates are available?
These are a few of the many important questions you need
to answer before making this big decision. Here are some
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guidelines to help you in the process.
STEPS TO FINDING THE RIGHT
CAR FOR YOU
1 What kind of car do you need?
1.
Take a moment to think about what you use your
car for.
How many people do you need to transport?
How long is your commute?
Is it important to get good gas mileage?
Will the car easily fit into your garage or parking
space?
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CAR FOR YOU con’t.
2. How much can you afford?
Regardless of whether you decide to buy or lease,
establishing a realistic monthly payment that fits
your budget is crucial.
Rule of thumb, your total monthly car payment
shouldn’t exceed 20% of your monthly take home
pay.
Check the Edmunds.com Affordability Calculator to
estimate what your monthly payment will be
based on purchase price, interest rate, etc.
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3. Have you considered all of the costs of
ownership?
Here is an often overlooked fact of car ownership:
One car may be cheaper to buy, but more
expensive to own.
Why? Even if two cars cost about the same to buy,
one can depreciate
d
i t att a diff
differentt rate
t or costt
significantly more to insure or maintain.
Go to Edmunds.com and use the True Cost to Own
information table before deciding which car is
right for you.
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4. Research your options.
In the past, car buyers have been trained to visit local
dealerships to find the car they want. In the
internet age, this is a waste of time & money. You
can quickly cover more ground by shopping online.
5. Schedule an appointment for a test drive.
It’s a good idea to make contact with a dealership by
phone or e
e--mail before going there in person. This
can give you a sense of the sales style you will be
dealing with.
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6. How to test drive a car.
The testtest-drive should replicate the conditions the car
will be used in after you buy it. If you commute,
drive the car in both stopstop-and
and--go traffic and at
freeway speeds.
If you frequently drive in the mountains, try to find
some steep
t
grades
d tto climb.
li b
Be sure to sit in the backseat so you’ll know what it
feels like for your passengers.
Make sure the radio’s volume is not on high so you
can hear if something is wrong.
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7 After the test drive.
7.
drive
You should leave the car lot. Why? You will probably
need to drive other types of cars at other
dealerships. It’s a good idea to do all of your testtestdriving in one morning or afternoon.
Driving the cars backback-to
to--back will help you uncover
differences that will lead to an educated purchase
decision.
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8.
8 Getting ready for the buying cycle.
cycle.
At this point you should have considered all the
cars that interest you.
You should have a good idea what you can
afford.
You should
h ld know
k
if you want to buy
b or lease
l
your next car.
You should have testtest-driven your top choices.
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New versus Used Automobiles
PROS for NEW cars:
Extended warranty
Updated safety features
Overall safety
CONS for NEW cars:
Depreciating value
Expensive
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New versus Used Automobiles
con’t.

PROS for USED cars:
Most new carmakers now sell “certified” used cars,
which includes warranties
The history of a used car can easily be traced using
the vehicle identification number
Lower cost & Less depreciation
p
You’ll save money on insurance
CONS for USED cars:
More maintenance
Mechanical surprises
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Buying versus Leasing
PROS for BUYING:
Car ownership
Build equity
Drive for several years after payoff
CONS for BUYING:
Extended financing
Cars depreciate in value
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Buying versus Leasing (con’t)
PROS for LEASING:
You can drive a more expensive car for less
New car every few years
Lower monthly payments

CONS for LEASING:
No equity
Greatest cost to you
Never ending cycle of monthly payments
Mileage restrictions
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HOW LEASING WORKS
Leasing a car is like renting a car – but for a longer
time period. You can either give it back at the end
of the lease or you do have the option to buy it.
Leasing became popular in the 1990s because cars
became too expensive to buy for many people.
Leasing
eas g ca
can o
offer
e ta
tax b
breaks
ea s for
o ce
certain
ta occupat
occupations.
o s
Before deciding to lease, please check out
leaseguide.com and fightingchance.com.
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COMPARISON CHARTS FOR BUYING NEW,
LEASING OR BUYING USED
The following charts show comparisons
between buying new, leasing and buying
used.
For the purposes of the buying or leasing new
car examples,
examples we assumed that the owner
would drive 12,000 miles a year and the
price of the car was $20,000.
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New Car Ownership — First
Year (3
(3--yr loan @ 6%)
Down Payment
$3,000
Monthly payment $608 per month
$7,296
Insurance
$1,140
Maintenance & repairs
$100
DMV Fees
$300
(included in monthly payments for first year)
TOTAL
$11,536
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New Car Ownership — 5-Year
Total (3
(3--yr loan @ 6%)
Down Payment
$3,000
$21,888
Insurance
$5,700
$1,100
DMV Fees
$1,000
($300 included in monthly payments for first year)
TOTAL
$32,388
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New Car Lease — First Year (3
(3-yr lease @ 6%)
Down Payment
$1,000
$4,200
Insurance
$1,380
$100
DMV Fees
$300
TOTAL
$6,680
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New Car Lease — 5-Year Total
(Two 3
3--yr leases @ 6%)
Down Payment
$2,000
Monthly payment
$21,840
$350 /month for 36 months
$385 /month for 24 months
Insurance
$6,900
$800
DMV Fees
$1,230
TOTAL
$32,140
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Used Car Ownership — First Year ($10,000
price ~ 33-yr loan @ 8%)
Down Payment
$2,000
$3,420
Insurance
$850
$300
DMV Fees
$200
TOTAL
$6,570
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Used Car Ownership — Five
Five--Year Total
($10,000 price ~ 33-yr loan @ 8%)
Down Payment
$2,000
$10,260
Insurance
$3,430
(rates drop after first three years)
$2,700
DMV Fees
$650
($200 included in monthly payments for first year)
TOTAL
$18,390
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COMPARING OWNERSHIP SCENARIOS
New Car
$20,000
$32,388
Used Car
Leased Car
$10,000
$20,000
Cash outout-of
of--pocket
$18,390
$32,140
$7,000
Value of the car now owned
$2,000
$0
$25,388
Adjusted cash outout-of
of--pocket
$16,390
$32,140
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What is the Lemon Law?
Lemon Laws are American state laws that
provide a remedy for purchasers of cars that
repeatedly fail to meet standards of quality
and performance. These cars are called
“lemons.” The federal lemon law (the
Magnuson--Moss Warranty Act) protects
Magnuson
citizens of all states. Lemon laws vary by
state and may not necessarily cover used or
leased cars.
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Trivia ~ What is the reason for
the law’s name?
In the 1800s,
1800s people started using the word
‘lemon’ to describe people who were sour (or
unfriendly). In American English the word
was first recorded in 1909 in the slang
“worthless thing.” Over time, ‘lemon’ came to
refer
f to anything
hi that
h was defective
d f i or
broken or which breaks constantly,
particularly a car.
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What if the Lemon Law does not
apply?
If the defects with your vehicle do not meet the
requirements of the Lemon Law, you may have
claims under other state and federal laws that
protect owners of new or used vehicles.
For more information, check out the Magnuson
Magnuson-Moss Warranty Act & the Uniform Commercial Code
at www.wikipedia.org
www.wikipedia.org..
For more information on California’s lemon law go
to www.californialemonlaw.info

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Guaranteed Auto Protection (GAP)
Insurance
GAP insurance will cover the difference or gap
between the amount you owe on your car and the
car’s actual cash value (ACV) in the event the car is
totaled or stolen.
New cars depreciate 20% the moment they are driven
off the dealer lot & continue to do so during the
first three years of ownership
ownership.
If you finance 100% of the price of the car or make a
down payment that is less than 20%, you will owe
more than the car is worth for a period of time. This
is known as being “upside down.”
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GAP Insurance con’t.
Edmunds com a leading information web site,
Edmunds.com,
site
recommends GAP insurance on a new car for those
who are:
Financing for 72 months or more
Rolling negative equity from a previous car loan into
a new loan
Making a down payment less than 20%
Leasing a vehicle
Purchasing a car that depreciates quickly
(luxury/highly optioned)
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HANDY CHECKLIST & TIPS
Whether you are buying new, used or leasing.

Choose the right vehicle for you
Look up the car on Edmunds.com & check its
reliability & consumer reviews.
Research the internet for prices.
Decide how you are going to finance your car & get
pre--approved
pre
p
pp
before shopping.
pp g
If buying a used car, get a vehicle history report.
Carfax.com
If buying a used car, take it to your mechanic to be
checked out before purchasing.
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HANDY CHECKLIST & TIPS con’t.
If you are trading in your old car,
car check to see what
it’s worth before going to the dealer. Kelly Blue
Book @ kbb.com or Edmunds.com.
Try selling your trade
trade--in to a private party instead
of letting the dealer give you the bare minimum for
it.
Inspect the car for dents, dings and scratches
before taking final delivery.

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HANDY WEB SITES
www.californialemonlaw.com
www californialemonlaw com
www.carfax.com
www.carinfo.com
www.cars.com
www.costco.com
www edmunds com
www.edmunds.com
www.fightingchance.com (Leasing 101)
www.kbb.com (Kelly Blue Book)
www.leaseguide.com
www.wikipedia.org
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THANK YOU & HAPPY SHOPPING!
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