Questions About Financing New Vehicles

littlered1 · June 2000

Lease is up in two months from Toyota. Need to sell this vehicle and have my heart set on an SUV. I started surfing this site to soak up info.

If I sell the car myself. what do I need to do and know (ie paperwork). If you already answered questions like these, you can direct me to where I can find the answer

Thanks,
amc

CarMan@Edmunds · June 2000

Amc, you can not actually sell the vehicle that you are currently leasing unless you exercise your purchase option at lease-end. Toyota Motor Credit Corp. or whatever bank you are leasing this truck through technically owns it until you pay them the amount of money that is stated on your contract as your lease-end purchase price. The bank that your lease is through may be willing to work with you a little on your lease-end price if you do decide to purchase your truck, so if this is the option that you decide to take make sure find out if they are willing to negotiate with you.

Car_Man
Smart Shoppers / FWI Co-Host

alien_investor · June 2000

Wow, was I long-winded or what?!

I know a couple of things about credit and finance, but very little about mechanics, repairs, and stuff. So I came to edmunds.com to educate myself and have been lurking for a few weeks. I'm happy to share my two cents when I can. I'm benefitting from about two thousand dollars worth of other people's knowledge and common sense!

littlered1 · June 2000

Thanks for the advice, CM
So, I first should figure out what I may have to pay at lease end, right?? And then decide which would be financially better for me.
OK. So, depending on which is the cheapest way out of this "deal", I may buy the truck and then turn around and sell it, hopefully making alittle profit so I can put that towards a new vehicle. Is this asking for Headaches (I've never sold something myself) OR just pay the over mileage penalties (which I already have a $400 lease deposit that can go toward the over mileage $$)
Can I give Toyota a call and bring my truck in a bit early for a preliminary inspection to figure out just how much I will owe if I turn in the vehicle??

I know there is alot questions....

Thanks,
amc

CarMan@Edmunds · July 2000

Amc, you hit the nail right on the head. Which option is best for you all depends upon how much money you will own on your leased vehicle at lease-end. It's all about trying to minimize the about of money that you will have to spend to get out of this truck. Please keep in mind that it is very very important to be realistic about how much money you can sell this vehicle for on your own if you decide to exercise your purchase option. Many people overestimate the market value of their vehicles and get burned. Of course selling a used vehicle can be quite an inconvenience. You just have to decide if the amount of money that you realistically believe that you will save by doing so justifies the effort that you will put into it.

Every financial institution has different lease-end policies so I don't know for certain if Toyota Motor Credit Corp. will allow you to bring in your vehicle for a preliminary inspection. You might as well give them a call and see if they are willing to do so, the worst they can do is say no. If they aren't willing to help you out, perhaps your dealership would be able to give you a rough idea. Good luck with everything.

Car_Man
Smart Shoppers / FWI Co-Host

chiumar · July 2000

Dear Car Man,
Thanks for your response. I am interested in SUVs...particularly the Nissan XTerra, PathFinder, and Suburu Forrester. Would appreciate if you have lease information on these. Also, I've heard that leasing a car for business purposes is a good tax write-off. I am starting a real estate business and would like to know how I can do that. Can you please provide some advise? Thanks!

CarMan@Edmunds · July 2000

Chiumar, there can be tax advantages to leasing a car if you own your own business. You really need to speak with your accountant to find out what the best course of action would be in your particular situation. As far as the vehicles that you are interested in are concerned, I would be glad to provide you with some details of their lease programs, but I will not have that information until late next week. Also, I will need to know how long you plan on leasing for and how many miles per year you will drive.

Car_Man
Smart Shoppers / FWI Co-Host

steve210 · July 2000

Dear Car Man,
On 7-7-00 I was rushed into buying a 1999 Ford Escort and, after doing my home work, I find I
paid $1000.00 over current value. My question
is: After I sign the contract what length of
time do I have before I can't back out.

alien_investor · July 2000

Suppose the dealer called you up and said "we changed our minds. Someone else came in looking for an escort, and they offered us $500 more than you paid us." Would you pay up an additional $500 to the dealer?

It doesn't matter if you had your fingers crossed behind your back. It doesn't matter if you were saying in your head "I'm really not sure yet".

Next time, do your homework before you sign (before you visit the dealership at all is even better!). And if you feel rushed, use your feet instead of your pen. The dealer will still be selling cars when you come back!

bblaha · July 2000

I'm not a lwayer or anything, but basically I think alien_invester is right. Your only out would be if your state has some sort of consumer protection that permits contracts to be invalidated within a period of time if either party chooses to do so.

To cheer yourself up, think of it this way. Whenever you buy something, in this case a car, you have to choose between the object you are buying or the money, equal to the agreed apon price. Since you chose the car, you obviously wanted it more than the money.

Feel better?

Next time you'll be better prepared and able to negotiate a lower price.

melech · July 2000

Carman, you've mentioned a number of times that leasing through the manufacturer's finance company will generally give you the best lease rate because the company wants to move the cars.

Question: Can the dealer "add-on" to the company's interest rate or fees to increase their profits? How do we know that the rate we're quoted by the dealer is indeed the company's best rate without padding by the dealer?

Melech

CarMan@Edmunds · July 2000

Melech, yes it is true that manufacturers' captive finance companies are frequently able to provide the best lease deals on certain vehicles because of all of the lease support that the car or truck's manufacturer is providing. On vehicles that do not receive a lot of factory support it frequently turns out that third party lending institutions often have better deals than those of captive finance companies. Most banks do allow dealerships to mark-up the lease money factors or interest rates that they use to calculate a consumer's lease payments. It seems to me as though this practice is becoming an increasingly popular source of additional dealership revenue in today's auto market where consumers have access to invoice and incentive data and are using it to beat up dealerships on vehicles' prices. Still a dealership has to be pretty sure that they have you hooked before they mark-up the interest rate on your leased vehicle otherwise you are liable to walk for a better deal. I believe that shopping around is a great way to find out whether or not the dealership that you are dealing with is marking-up the interest rate for your vehicle. By comparing the deals at several dealerships you can usually find out what the base interest rate should really be.

Car_Man
Smart Shoppers / FWI Co-Host

rammit2000 · July 2000

My wife and I have been looking for a Hyundai, (if you have nothing good to say about them dont say it). It seems that Hyundai has been offering .9% interest rates on the Sonata for 48 Months and a little more for 60 Months. Well come the end of June, these deals have ended, at least in midwestern Ohio. It seems that many of the car manufacturers have ended some pretty good financing rates the end of June. Does anyone know the cycle of these deals? Were pretty anxious to buy a car.

CarMan@Edmunds · July 2000

Rammit2000, Hyundai just came out with their July incentives the other day and the Sonata special financing program that you mentioned was continued unchanged through the end of this month.

Car_Man
Smart Shoppers / FWI Co-Host

gb9 · July 2000

I have come very close to sealing a deal on a new Sienna. The dealer and I are at odds over substantial advertising charges ($370) which I am not willing to pay (at least not in full).

The question I have:

I plan to pay the whole amount (no financing required). Would it be an extra incentive for a dealer to deal if I agree to finance with the dealer, with the minimum required down payment? I know that they like you to finance whenever possible.

If so, is it likely that I can turn around and pay the whole thing off in a week without any penalty? I know that I would have to read the fine print and all to make sure, but is there typically a pre-pay penalty on auto loans??

Does my idea make any financial and practical sense?

Please reply urgently !

Thanks

melech · July 2000

... you mentioned that a third-party lender will often be a better way to lease if the manufacturer is not providing support.
I'm confused on how a third party lender works on a lease deal. In a bank loan for a purchased car, he bank is simply lending the money with a lien. However, on a lease doesn't the third party become the owner instead of, say, VWCredit? Are banks willing to do this? I know there are leasing companies out there, but I've been told they act as a middle man and simply add another pocket to the cost of the deal.

Melech

CarMan@Edmunds · July 2000

Gb9, Many people believe that they will get a better deal on their new car or truck by telling the dealership that they will pay for it immediately in cash. In actuality dealerships hate to hear this because they make money off of getting you to finance your vehicle through a bank that their F & I department recommends. It probably would be an incentive for a dealership to give you a better deal on the price of your vehicle if they knew that they would make money on your financing of it. However, I doubt that the price break that they would give you for doing so, if there was any at all, would outweigh the expense of financing an unsupported Sienna with the minimum down payment. Prior to financing a vehicle with the intention of paying off the note early, you must be very very careful to read the fine print of the finance contract to see if you are allowed to do so. Whether ir not you are allowed to will vary from bank to bank.

Car_Man
Smart Shoppers / FWI Co-Host

CarMan@Edmunds · July 2000

Melech, yes if you lease your vehicle through an outside lending institution like Chase they would technically own your vehicle instead of the captive finance company like VW Credit. Banks do this all the time. In fact many dealerships have computer programs that enable them to search all of the banks across the country, big and small, to find out which one is currently offering the most attractive leases on the car or truck that you are interested in leasing. These banks are not like the leasing companies that you described and so not add any additional costs do your deal.

Car_Man
Smart Shoppers / FWI Co-Host

melech · July 2000

...Wish I knew about this site several years ago. The ability to speak to experts on any subject is, to me, the most important benefit of the internet.

I'll probably have some more questions about the mechanics of leasing as the dread expiration day of my current lease draws closer.

Melech

CarMan@Edmunds · July 2000

Melech, I'm always glad to help. Please make sure to come back and visit often.

Car_Man
Smart Shoppers / FWI Co-Host

wells5 · July 2000

Glad to have found Edmunds, have already learned a lot! Planning to buy a new Honda Accord. Called the credit union to get pre-approved and was able to get their best rate, currently 8.04%. They will drop it to 7.04% if I buy through their car buying service. Have been in touch via email/phone to several dealers. Was told today that the special Honda financing (6.9% 60 months) IS a simple interest loan. I am having trouble finding out if this is true. Checking the "glossary" at hondafinance.com I found this:

Interest vs. Equity: The money paid back on a loan is part interest and part principal. At the beginning of the loan, your monthly payment consists mostly of interest. This serves to protect the credit institution that makes the loan. As a loan matures, this monthly payment consists of more and more principal. By the end of the loan, monthly payments are almost entirely principal, which builds equity.

This leads me to believe the dealer is not telling me the truth! Anyone have a loan through Honda Finance or know if their loans are simple interest or the more common rules of 78 type (I believe that is what they are called?!)

Thanks in advance for any info/advice! wells5

ral2167 · July 2000

don't be getting any 60 month loan.... if you need that long a term, you can't afford the car... stick to 36 month, or 48 at the very most. am i right or am i right?

wells5 · July 2000

Thanks ra2167 for your caring advice. I was just using the 60 months 6.9% Honda rate as an example. They also offer 48 months at 5.9% I believe and a lower rate for 36 months. My Real Concern is whether it is truly a Simple Interest loan, like the credit union offers, or the more standard car loan which used to be factored using the "rule of 78's." Obviously the lower interest rate is better but is the difference worth it in the long run if you decide you want to pay the vehicle off early or if an unfortunate accident occurs in the 2nd year and you find out most of your payment has gone toward interest (not to mention the depreciation of the vehicle!) Knowing the way the Honda Financing works would be helpful in making a decision. wells5

bblaha · July 2000

I haven't read a Honda contract, so I can't speak directly to it. However, everything you wrote in paragraph 2 of your post #387 (except the "This serves to protect....." sentence) is true of of a simple interest loan. When your balance is high, the amount of your payment that goes to interest is a higher fraction of the payment than near the end of the loan, when the balance is low.

If you were told the loan is simple interest, I would expect that it probably is.

wells5 · July 2000

Thanks bblaha. Yes I believe you are correct. I guess I am worried about somehow being cheated once I get to the dealership to buy the car. I do have the pre-approved credit union financing so if the loans are both simple interest I will go with the Honda Financing if approved for their lowest rate (which I assume I will be as I was at the credit union.) Terrible to have to worry so much about being cheated! wells5

wells5 · July 2000

Thanks for spelling it out so clearly. I plan to print out the formula and have it on hand! Appreciate your writing! wells5

cyberjay · July 2000

Hi everyone

I plan to purchase a Acura Interga and was planning to borrow a 36 or 48 month 12000 dollar loan.

Did anyone use Eloan or Peoplefirst , Do they charge a bank fee?
Any info about them would be greatly appreciated

Thanks a lot

jkapoor · July 2000

hi guys
i need some help regarding honda finance which honda is offering till 31st of july on finance which was 4.9\5.9\6.9 for 3\4\5 years
couple of my friends got the finance in CA sanjose without any credit history which meant they were first time buyers but when here in Austin tx i tried to contact first texas honda they say i donot have any credit history , i just wanna ask honda does it make a difference whether a person in living in sanjose or austin when both of us are software consultants getting same amount of salary per annum .

CarMan@Edmunds · July 2000

Richb5, I see that you are leasing this car through Chase rather than Infiniti Financial Services. That's good, because it usually turns out that Chase has better deals on Infinitis than their own captive finance company does. The lease money factor and the capitalized cost that the dealership used to calculate your lease both look very good to me. I think that you did fine, enjoy your new car.

Car_Man
Smart Shoppers / FWI Co-Host

richb5 · July 2000

Car_Man:

The lease I quoted above, $500 per month (w/tax), is from one NJ dealer. I went to another dealer on Saturday, although this one didn't bother disclosing all terms, I did verify that the MSRP is the same, $34500, and his qouted pmt is $459 (w/tax); also 39 month lease with Chase and same cap cost reduction of $500. I am estimating the cap cost to be around $30,750! Just like you say, it pays to shop around.

I accepted this offer and left a deposit - we will finalize in the next week or so as the dealer is searching for the particular color combo I am looking for in a 2000 model.

This Edmunds Wesite is great as it gave me the ammo to know what to look for and then how to get the BEST price as well.

CarMan@Edmunds · August 2000

That's great Rich! I am glad to see that you were able to find the car that you wanted so much cheaper at a different dealership. Shopping around definitely does pay. If one doesn't shop around then they have no way of determining what the market price for the vehicle that they are interested in is in their neck of the woods and are completely at the mercy of the only dealership that they visit. Please make sure to come back and let us know how you like your new car.

Car_Man
Smart Shoppers / FWI Co-Host

giaz5 · August 2000

Car man,

Just came across this site during my investigation of two cars I am considering. The GS300 and the soon to be available bmw 530. I currently have a 93 GS300 with 105K miles. The car is in great shape and very well maintained. the quality, service and value for the money certainly makes the new GS300 a strong contender.
That said Im also looking at the soon to be announced bmw 530. The dealer told me they would be getting some info about it in two weeks.

Based on your knowledge is it better to lease a new for the model year car or negotiate down the price of the year end models. In both gs300 and bmw 528 the new models will have enhanced features, especially with the bmw reported to have some body styling upgrades and the extra hp.

Also do you or anyone out there have some good examples of a well optioned GS300 and or BMW 528i.

Thanks for all the great info on this forum.

CarMan@Edmunds · August 2000

Hi giaz5. Given the fact that Lexus has never really provided any lease support on the GS 300 whether it is a better value to lease one over the not yet released 2001 BMW 530 all depends upon how much of a discount you can negotiate on the Lexus and how expensive the new BMW is when they announce pricing for it. Theoretically, given the fact that the BMW is a new model and the fact that you will probably be leasing one very early in its model year it will probably have a higher residual value than a Lexus GS 300 would for the same term and mileage. If both of these two cars had the identical price, the higher residual value would actually give the BMW lower monthly lease payments. Of course the prices of these cars probably will not be equal and you probably will not be able to negotiate much in the way of a discount on the new 5-Series. So it all boils down to how much of a discount you are able to negotiate on the Lexus. If the dealerships that you visit do not seem all that willing to come down much on the price and you don't mind waiting a little while, you may want to seriously consider the BMW.

Car_Man
Smart Shoppers / FWI Co-Host

richb5 · August 2000

Well, the dealer tried to find the color combo I wanted but couldn't do it. I have decided to wait. I hope in the next model year or two we will see more power + a faster 0-60 time.

Thanks again.

Rich B.

CarMan@Edmunds · August 2000

Thanks for keeping us informed, Rich. Please feel free to come back and ask all of the questions that you would like when you do decide that you are ready to get a new car.

Car_Man
Smart Shoppers / FWI Co-Host

abcguy28 · August 2000

Not sure if this is the correct board for my question...but here goes. I just bought an new 2000 Isuzu Trooper with 1.9% financing through the Isuzu dealer. I was told by the finance dept that I need to have full coverage on my insurance policy (which I do) for the financing approval. I received a call from my insurance agent today stating that Isuzu had called her and toldher that I needed to have 100K/300K/50K liability on the policy. The agent stated that that on lease programs they normally required 100K/300K/50K minimum liability for dealers financing, but she never heard anything about purchases of vehicle. She thinks the finance person from Isuzu is incorrect about increased liability for straight purchases. Have anyone had experience with this matter? Thanks in advance.

KCRam · August 2000

Don't hesitate to check into insurance companies. What you probably should do is check in with a few local independent insurance agents, who can offer more than one company's products. Farmers is occasionally on the high side ratewise, but I know nothing about Mercury or their reputation but the name. I'll see what i can dig up on them.

kcram
Co-Host - Smart Shopper & FWI Conferences
edmunds.com Town Hall

sogifted · August 2000

Can anyone share experience paying real, hard
CASH? I was told it's a good way to really get the
price down, place real green heaps on the desk of
the dealer / supervisor "I have to ask my
supervisor"???
It's my first buy on my own car (before I got help
from brother in law, husband, etc), this is going
to be MY car - and I really have a limit and
cannot/dont want to get a loan

KCRam · August 2000

Hi sogifted

If you have a set budget and have the cash on hand, buying for cash is not a bad idea, provided you put a few bucks away every month. Not necessarily how much you were willing to pay monthly, but something. The idea is to offset the depreciation of the car with some interest-bearing savings.

As for getting a better deal by paying cash, most dealers truly don't care - you're not leaving with the car until it's paid for, whether you pay cash, finance, or lease. In fact, there are those not-so-nice places that actually put a small premium on cash because they lose their ability to get commission on selling a finance or lease plan.

What vehicles did you have in mind, and are you considering new or used?

kcram
Co-Host - Smart Shopper & FWI Conferences
edmunds.com Town Hall

jackb6 · September 2000

If I can pay a substantial amount of cash, would that be better, if I pay myself back, rather than have to pay that amount back to an institution(bank or dealer). Or would it be better to finance through a loan and leave my savings alone?

bblaha · September 2000

From a strictly mathematical approach, it is virtually always better to put the money wherever the interest rate is the highest. If your savings is earning 4% and a loan is costing 8%, mathematically it makes sense to take the money out of savings and put it towards the loan (or downpayment). If the money is invested and earning (typically) 12%, then the argument is keep it invested rather than putting it toward the loan.

Take the flipside argument. If you owned a car but had no money in savings, would you go borrow money (using the car as collateral) at 8% to put it in your savings account to earn 4%?

Personally, if I had the cash, I would pay cash.

bardarse · September 2000

question #1

Is it possible to use ones credit card to increase the down payment?

#2

I'm currently financing my car. I want to ditch this car for a new one. I want to get the best APR for the new car. Do I apply for car loans before I sell my current car, or after? If I want to trade in my car then i guess I have to get a loan first... unless i finance through the dealer right?

KCRam · September 2000

Hi bardarse

#1 - Yes, many dealers will accept credit cards for deposits and down payments. That should not be a problem.

#2 - If you have good credit, it won't make much of a difference when you apply for the new car loan; you should have no trouble being approved. If you're borderline, or not-so-good, you should probably shop for interest rates and apply before you go car shopping. Some banks have programs that will tell you what they will lend you, and that becomes your car budget.

kcram
Co-Host - Smart Shopper & FWI Conferences
edmunds.com Town Hall

questions1 · September 2000

Hello,

I'm looking at all the paper work for the car I'm buying and because the deal is tentative they made me fill out a Conditional Sale and Delivery Agreement and it constantly refers to a MVPO? What is that and is it the same as the purchase agreement?

KCRam · September 2000

Hi questions1

More than likely, that will stand for Motor Vehicle Purchase Order. Since you say the deal is tentative, the terms of cancellation should have been clearly spelled out on the paperwork you have signed already, specifying any non-refundable payment or binding terms.

kcram
Co-Host - Smart Shopper & FWI Conferences
edmunds.com Town Hall

jimmcc · September 2000

What is the formula for figuring out a monthly car payment to include intrest? Just curious, thanks! Jim

mtomp · September 2000

Yahoo Autos has a loan calculator that is very easy to use, didn't pay close enough attention in math class to remember the formula.

jimmcc · September 2000

I know there are loan calculators everywhere on the net. I wanted to know for myself so I can figure it out with out needing to be on the internet. I too cannot remember the formula.

bblaha · September 2000

Nomenclature:

N = Number of payments = Number of months
APR = Annual Percentage Rate
r = Monthly percentage rate = APR/12
A = Amount financed
P = Monthly payment

Formula:

A * r * (1+r)^N
P = -----------------
(1+r)^N - 1

Note:
a) (1+r)^N means (1+r) raised to the Nth power; i.e x^3 means "x cubed"

b) This formula assumes you make your first payment, P, 1 month after the day you borrow A.

jimmcc · September 2000

Sorry I don't mean to sound so dumb, but I can't remember what Nth is?

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