How to Finance A Car

BEST RATES - FROM AN INDUSTRY INSIDER It's not rocket science, but if you don't ask you will not receive. I worked at a dealership for nearly a year and know the inside scoop. Don't get ripped off the next time you go to buy a car.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• good credit, consistant income, patience

1. You’ve got the money burning in your pocket and you’ve got the itch - Its time to buy a new car!!!!
   
   You want to get the most bang for your buck and start clicking away through sites, www.autotrader.com, www.edmunds.com , www.kbb.com learning all the systems and features and reading reviews. You learn more about the cars than the dealers themselves. The internet has made you an automotive guru. You are ready to buy!
   
   If you’ve done your research you will have noticed several sites that promise to show you how to buy the car at invoice and pay less than the dealer. And for a small subscription fee you will learn how to beat the dealer!!! Sounds great!!!
   So you sign up and start receiving a ton of emails showing ways to “trick” the dealer and 3 phone calls a day from another salesperson, on top of the sales guy already calling you from the dealerships because you entered the required contact information at every car- site online. Here’s the problem. The site hasn’t sold you a car, and you haven’t gotten anything but a worthless -$59.99 charged from your account every month and more sales-people calling you daily. Why is buying a car so tough? Why can’t you just find a place that will sell you the car the invoice price? How do you really get the best deal? This ehow will show you all the “tricks” you need to know, but mostly, the reality of the car business. Hopefully I can educate you on making the best car buying decision in the future.
   
   Let’s be honest, buying a car is just like buying anything else, someone is making a profit. So, why should cars be any different? Being able to negotiate price is a huge advantage over any other industry, being able to lease an expensive vehicle for a portion of the cost shows how willing automotive professionals are to earn your business! That should show exactly how fair the car business is.
   
   If you’ve ever tried to buy a home or mortgage, you’ve seen the “good-faith” estimates that show how much you are being charged for “closing” and other non-negotiable fees, including the huge profit your agency makes for buying and selling your house, so why is it okay for your real estate agent to make $20k off selling your home while you haggle your car salesman over the $100 commission he or she makes off hours of helping find the right car for you? Or why is it okay for Nike or Ralph Lauren to sell you a shirt for $175.00 that costs them only $10.00 to make? That's over 100% markup!
2. What makes the "car salesman" sleazy? He (or she) is just an honest person trying to make a living providing a service to a customer, just like any other industry. Let me be frank – everyone wants a “deal”. That’s why we shop specials and go bargain hunting. It feels good to know you spent a fraction of the cost for that $80.00 t-shirt because you got it at Nordstrom's Rack. The same thing applies that one time every 3-4 years you go in to get that new car you’ve been eyeing…
   
   No one wants to feel they got “suckered” by the dealership and everyone wants to pay less than what the dealership paid. This ehow was created to give the consumer a few pointers in getting the best and most realistic “deal” from the dealership. It is possible, and it doesn’t have to feel like pulling teeth.
3. WHAT DO I WANT?
   
   This is the first thing you need to ask yourself when making that next vehicle purchase. Stay focused. There are tongs of different cars out there and even more questions you need to ask yourself:
   
   1. What will I be using the vehicle for?
   2. Where will I be doing most of my driving?
   3. How much will I drive the vehicle?
   
   It is most important to find the right vehicle to fit your needs. Seriously assess your needs and automotive goals before walking into a dealership. Do your online research, and don’t submit your information to anything before making a serious buying decision. You will only end up with a million salesmen harassing you.
   
   Also consider how long do you plan to keep your vehicle? If you have good credit, and like to stay “up” on new models, you might consider a leasing. It will open up your options, shorten your financial commitment and lower your monthly payments. I also have a great leasing trick for those who like to own cars for a long time. (keep reading)
4. WHERE DO I BUY AND WHO DO I BUY FROM?
   
   There are a ton of dealerships out there - Who should you buy from? And most importantly, who can give you the best deal?
   
   The reality is every dealer gets inventory from the same place, its simple economics. They pay X amount for any given vehicle and aim to sell the car for Y. They need to make a profit, that’s how they run their business. Occasionally dealers will get overflow and will start looking to sell cars for less to move units. If you are looking for the BEST DEAL, get an overflow car, the dealer is willing to sell it for less simply to move the unit.
   
   For the picky individual who wants a car first or wants a select trim and style, understand there is a cost for luxury and dealerships will be unlikely to discount limited edition models and supercharged makes.
   
   It comes down to how you feel in the dealership and how you are treated. Salesmen work strictly on commission (no big surprise) and need to work to earn your business. Make sure the person you are dealing with listens to your needs. Your salesperson should provide genuine help in searching for the right vehicle for you. Mostly, make sure you feel comfortable around your salesperson and trust him. If you get excellent service at a well run dealership it shouldn’t be a problem paying MSRP and coming back for repeat business.
   
   Remember, salesmen are people too and work hard to make a living. Working in the automotive business strictly off commission is very tough. Figure his commission as a tip, if your sales experience meets all of your expectations and you genuinely want the vehicle it’s only fair to return the gratitude. The right place will still give you an excellent discount either way, and not only will you get the same deal, but will have established a nice, open, working business relationship with a dealership you can trust.
5. HOW DO I BUY? LEASE VS FINANCE
   
   This is probably the most controversial subject in the automotive world and most importantly, your purchasing decision - to lease or finance. What will work best for you?
   
   Both routes involve a monthly payment. The smart buyer should keep their monthly payment about 8%-10% of your monthly income. If you work on a commission-based salary simply take your annual income and divide by 12 to find your monthly income.
   
   Figuring out your monthly budget makes buying a car much easier. You won’t waste your time looking at a vehicle that is out of your budget – knowing and being responsible for your own finances is crucial, not only in buying a car but in life. Learn and master the skill of how to budget your own finances – That is the best advice you will ever receive.
6. So you’ve found a vehicle and your ready to make a move. If you are financing a new automobile make sure you know how much the vehicle will depreciate (go down in value), and work to get an EXCELLENT interest rate. If you keep your eyes open you will generally find special 0% financing rates advertised at certain dealerships. Or if it is a special make car that will APPRECIATE rather than DEPRECIATE (This is VERY rare and only on Collectable models and makes. It's almost impossible to predict. The original VW beetle, for example, is worth now than it was when introduced.)
   
   To figure the financing take the amount being financed (the cost of the vehicle after down payment) and divide it by the months you are financing. Then factor in the annual interest by taking the percentage multiplied by the cost of the vehicle and dividing by 12. Add those numbers together for your monthly payment
   
   I was taught this simple formula for a quick way to estimate monthly payments when financing a car:
   
   Amount Financed x 0.025= estimate monthly payment
   
   Take the amount you are financing and multiply by .025 and that will give you a pretty close idea for monthly payment. This isn’t a set in stone formula; payment will still be affected by the length of term, interest rate and is always subject to credit approval, but it will give you a pretty close ball-park figure
7. CHAPTER 5: LEASE
   
   A lease works by simply paying for the depreciation of a vehicle. The terms are shorter and the payment is less than a loan, because rather than buying the vehicle outright, you are paying for a fraction of the vehicle cost – the depreciation – or amount you are using the car.
   
   The advantage is you have less of a commitment (most finance will be 60 or 72 months while a lease is 24 to 48 months) and your monthly payments are lower. The freedom will allow you keep you in new model cars and allow you to switch your vehicle more often. Its very popular for professionals with great credit who like to keep their vehicles current.
   
   Let’s say you drive your leased vehicle for the term of the lease and you decide you want to keep it. You are able to buy the vehicle for a fixed residual amount that is predetermined at the beginning of the lease. This is called a closed-end lease, and should be the ONLY lease you use.
   
   The bank is taking all the risk and the consumer gets the enjoy the vehicle during the lease, at the end of the lease you could choose to finance the car for the residual, and your monthly payments will either stay the same or get better, depending on the car.
   
   Great deal, you worked the system and got the vehicle you wanted, and the most bang for your buck.
   
   A lease can be calculated like this:
   
   Monthly Depreciation + Monthly Finance Fee= Monthly Payment
   
   You will be charged a Finance fee and a Depreciation fee. Simply add the Depreciation fee to the Finance Fee and that is what you pay monthly.
   
   Depreciation is the amount the vehicle will LOOSE value over the course of the term. It is the difference between the cost of the vehicle when you bought it and the amount the bank says it will be worth at the end of the term. The Monthly Depreciation is simply figured like this:
   Monthly Depreciation = ( Net Cap Cost – Residual ) ÷ Term
   The monthly finance fee is figure like this:
   
   Monthly Finance = ( Net Cap Cost + Residual ) × Money Factor
   The Money factor is the amount of interest on the vehicle you are leasing. It will be presented as a money factor, which is approximately calculated like this
   Interest Rate = Money Factor x 2400
   Figure the monthly payment is the Monthly Depreciation and Finance:
   
   Total Monthly Payment = Depreciation Fee + Finance Fee
   The better your credit the better rate you will receive when leasing or financing your vehicle.
8. NOW HERE’S HOW YOU WORK THE LEASE!!!!
   
   At the end of the lease you will be allowed to finance the vehicle for the residual amount guaranteed by the bank. This number will be negotiated as a percentage when you initially lease the vehicle. TRY TO NEGOTIATE THE RESIDUAL. At the end of the term you can return the vehicle, buy it outright, or finance the remaining of the car.
   
   Buying the vehicle at the residual amount will generally be LESS than if you bought the vehicle from a dealership 2 years old, and you have been the only owner. If you’ve negotiated well, you should be able to finance the rest of the car for the same monthly payment as the lease or better.
   
   Simple, right?

Tips & Warnings

• Don't EVER settle for the first offer, do your research, visit a few dealerships and never buy the first car you see. Shop around and use the information you gain as leverage to get the best deal.
• Edmunds.com is an EXCELLENT source to research vehicles and gain leverage when you negotiate your next car deal
• When you lease there are penalties if you drive over the allowed mileage - if you drive a lot, just to be safe, get into a lease with more mileage!