With rising car prices, creative financing has come to the forefront, tempting us with promises of zero or minimal down payments and low monthly payments. In all finance scenarios, however, some sort of fee is attached -- the question is, which financial approach best meets your needs?
Leasing Lower monthly payments and less money down can make leasing seem like a great deal. The truth is that leasing offers a lot of convenience, but only if you are willing to put up with restrictions, which can include lower mileage limits -- typically only 12,000 miles per year, sometimes 10,000 miles per year -- diligent upkeep and care of the vehicle and, in some cases, penalties for early termination.
After a lease deal is offered to you, be sure to pay close attention to the negotiated purchase price of the vehicle and any additional fees outside the lease rate, and never sign a lease contract unless the residual value or optional purchase price at the end of the lease is clearly shown.
You are a good candidate for leasing if you prefer to have a new car every few years, put limited miles on your car and/or can write off your car lease as a business expense. A quick way to find out if leasing is right for you is to take our short quiz to determine your "lease friendliness." If you are using a lease simply to reduce the amount of your monthly payment, it may very well be that you are considering a car that, if you were to purchase it, would be outside your realistic capability to make the payments. If that's the case, you should give serious thought to selecting a less-expensive vehicle. If you abuse the opportunity the lease offers, you will pay for it in the future.
Buying Before considering the purchase of a new car, it is wise to establish the amount you are willing to spend, or to calculate the monthly loan payment. Don't forget that, after negotiating the final price of the car, you will need to allow some extra cash to cover tax, title and in some states, registration.
Next up, arrange your financing. You may choose to obtain a loan with the dealership or go with the manufacturer's financing. But there are options. You can obtain online financing. You may be able to arrange for pre-approval of a loan from your credit union. When you do some of these things, you may not have a specific vehicle in mind, just a general price range, and when you make the deal you write the dealership a check for the total amount. Some institutions will give you a lower interest rate if you have direct deposit and an electronic loan payment, so be sure to ask about it. Visit our financing section and explore a loan with LightStream, an online lending division of SunTrust Bank. Read more about financing in Step 7.
Remember to check for incentives on your vehicle of choice. From zero percent financing to customer-cash rebates, manufacturers are constantly competing for your business by making their vehicles and financing more affordable.