The price of gas has dramatically changed the landscape of the auto business. The demand for SUV’s and trucks has dropped to the point that many dealers will not even accept them in trade. Chrysler announced this week that it will be getting out of the leasing business due to plummeting residual values on leased cars (the estimated value of a car at the end of a lease). While larger vehicle values have dropped, the resale value of smaller cars has sky-rocketed.
In this rapidly changing environment for car buyers, I want to address 4 questions about buying a car in the new world of $4 gas.
1. What Is Your Opinion Of Leasing Vs. Buying A New Car?
Leasing is nothing more than a very expensive loan. I have heard every justification under the sun about why leasing makes sense, and none of them have changed my mind. The only thing worse than a 60 month auto loan is an auto lease. Leases typically require a healthy downpayment and 2 to 4 years of monthly lease payments. After you are done making your lease payments, you will likely still owe money for excess mileage or wear and tear on the vehicle. If you decide to purchase the car at the end of the lease, you will likely still owe enough that you will end up with a 2 to 3 year loan to pay off the difference.
Leasing is the worst way to buy your next car.
2. OK, Jim You Don’t Like leasing But What Are Some Tips If I Want To Pursue A Lease Anyway?
Negotiating on a lease is much more difficult than a purchase, although many of the same elements are involved. First, the value of the vehicle is negotiable even though the dealer will tell you it is not. It is a myth that the sale price of the vehicle is locked in when you lease. You have every right to negotiate on the value of a leased vehicle (called the “cap” value) just as you would on a new one. The next critical issue on your lease is your annual mileage allowance. This is a bit easier to work out with the dealer, so get as many miles as you can in your lease. If you don’t use them, fine. If you go over your miles, expect to be hammered at the end of the lease. Leases do not have interest rates but use money factors. You should always know your money factor APR and you can negotiate for a lower rate.
Money factors can be converted to annual interest rate (APR) by multiplying by 2400. For example, a money factor of .00297 multiplied by 2400 = 7.13%.
This is an interesting video on the concept of leasing used cars. You can get shorter lease periods and lower payments.
Another Interesting Video On Whether Or Not To Buy Your Vehicle At The End Of The Lease
3. In Light Of The Current Price Of Gas, I Am Considering Buying A New Car Is This A Good Decision?
Most people should not run out and buy a new car simply because of high gas prices. The best way to think about this is to determine how much money you will save each month on gas with the new car. Next, divide this amount into the cost of the new car and you will be able to determine how many months it will take you to break even. This may be a bit oversimplified, but I think you will get the point. If you are already in the market for a new car, you should by all means select the most fuel efficient one that meets your needs. On the other hand, dumping your current vehicle for the sole reason of better gas mileage is likely penny wise and pound foolish.
4. What Vehicles Are The Most Fuel Efficient?
2 Seaters -Toyota Prius, Smart For Two Convertible, Smart For Two Coupe, Mini Compact -Mazda MX-5, Mini Cooper, Sub Compact Toyota Yaris, Compact – Honda Civic Hybrid, Toyota Corolla, Mid Size -Toytota Prius Hybrid, Nissan Versa, Large Cars – Honda Accord, Midsize Station Wagon – Volkswagen Passat Wagon
Agree or disagree, leave your comment or advice below.
Helping you make the most of God’s money!