1. CH 12, 12.3 To Buy or Lease?

2. FACT: More than 80% of people finance their car purchase. Advantages of financing through a dealership? convenience low interest rates (as a promo) rebates (also promo, but financing through dealership not required) Helpful hint: it’s usually better to finance outside of the dealership, and take a rebate.

3. Who should consider a lease?  If you don’t want to pay for a new car  If you replace your car regularly  If you drive about 12,000 miles per year

4. Who should avoid a lease?  If you can pay cash for a new car  If you drive a lot or very few miles each year  If you hold on to your car for many years  If you are hard on your car

5. Leasing  essentially means you are renting the car  this means you own NOTHING  at the end of the lease, you must return the car, with nothing to show for it

6. Term to know when leasing…  gross capitalized cost (negotiable)  capitalized cost reduction (down payment or trade in value)  acquisition fee (admin. Fee to set up the lease, including refundable deposit)  residual value (car value at turn in)  money factor (interest rate) hint: multiply by 2400 to find interest rate  monthly payment  mileage allowance  excess wear fee  disposition fee (paid upon return of car to prepare for sale)

7. Steps to leasing: step 1 Negotiate the price of the car. This is important because it will affect your lease payments based on the ultimate residual value.

8. Steps to leasing: Step 2 Know the residual value (this helps determine what you will pay for during the lease)

9. Steps to leasing: Step 3 Make a down payment and security deposit (deposit is refundable, and usually equal to one monthly lease payment)

10. Steps to leasing: Step 4 Arrange financing. This is based on whatever the difference between the gross capital cost and the residual value is, less any down payment. Example: 30K car with a residual value of 20K, less a down payment of 2K means you must finance approximately 8K (30,000-20,000= 10,000….minus 2,000 = 8,000) Hint: you may want to consider paying for extra mileage up front

11. Steps to leasing: Step 5 Check leased car before you return it. Taking it to a mechanic is a good idea, as it is usually much cheaper to repair before you return. Be sure to keep good records of and problems. Hint: paying for a professional detail before returning the car may be worth your while.

12. Steps to leasing: Step 6 Return your leased car. After a dealer inspects the car, you have the option to buy the car you leased. Often you can negotiate the residual value. Otherwise, you pay the disposition fee and receive your security deposit.

13. Financing and Insurance FinancingInsurance Dealership can contact lending institutions for you If you take financing through the dealership, prepare to pay and additional 1-2% as commission Note: optional products like rust protection or security systems may be purchased at this time as well Accidental death and dismemberment (pays off balance) Gap protection (pays difference between what you owe and what vehicle is worth in the event your car is totaled Extended warranty protection (can be bought yearly)

14. The Sales Contract Pay attention to this! Things to look for:  cash price (this is your negotiated purchase price without financing)  down payment (this does not include trade in values)  unpaid cash balance (this is what you will finance after your down payment and trade in value are deducted)  Insurance Premiums (only added if you purchased)  Other costs (varies by state)

15. The Sales Contract Continued…  Principal amount financed (what you are financing altogether)  Finance charge (amount of interest you will pay. Be sure the rate is listed before you sign.)  Total cost of the loan (what you will ultimately pay for financing the vehicle)  Payment schedule (states how many payments and amount of each payment) Hint: read entire contract before signing.