"Test Your Car Buying and Financing IQ"

There are some basic questions that anybody looking for a vehicle and/or financing should know the answers to, and I don't mean "THINK" you know the answer, I mean "KNOW" the answer. Take this short test and find out if you really know the answers.

1. Am I really getting the best interest rate and loan terms that I qualify for?

2. What's the difference between a purchase and a lease?

3. How much should the used car I want to buy really cost? What's the true market value?

4. What is my present car really worth, and should I trade it in or sell it myself?

5. How can I be sure that my car salesman isn't just telling me what I want to hear?

6. The dealer suggested that I buy an extended warranty; should I, and if so what should it cost?

7. Where is the best value: in a new car or a used one?

8. I went to my bank to get an auto loan and was denied. Will a dealer be able to help me?

9. I went to a dealer that advertises "In House Financing"; will this help me rebuild my credit?

10. I hate the back and forth haggling when I buy a car. Is it possible to buy a car without all the haggling?

11. I need to buy a car; am I better off buying from a private party seller?

12. I'm considering a new car purchase and the dealer has offered to sell me the car at invoice. Is this a good enough deal?

13. How much down payment will I really need to finance a car?

14. Why is the dealer telling me that I'm approved for a $450 car payment, when I know I can only afford $250?

15. I just bought a used 2 year old car and it breaks down constantly; isn't there a lemon law that I can use?

16. I leased my car for 48 months; now, 2 years later, I would like a new vehicle. Am I stuck in this lease?

17. I have a low credit score and a credit repair specialist has recommended that I apply for an Employee Identification Number from the IRS and start using it in place of my social security number. Should I do this?

18. I bought a car a couple of weeks ago and now the dealer is telling me that the financing didn't go through. Do I have any rights here or do I have to return the vehicle?

19. I can't afford my car payment, but a friend of mine can. Can I simply turn over the car to my friend and let them make the payments.

20. I recently filed bankruptcy and will have a discharge letter shortly. I need to buy a car; will I have any hope of financing or will I be forced to drive a car that my small down payment will pay for?

How did you do? I'll bet that you'd be surprised at the real answers to the questions you're sure you got right.

If you can't answer, without any doubt, all of the questions that apply to your situation, then you're making a big mistake if you buy a car without first reading "The Insider's Secrets".

My name is Gary McClure; I am the author and a 30 year expert in every aspect of the automobile and financing businesses. You will find the answers to all of these questions and any others you might have in my book "The Insider's Secrets" or at my website. http://www.theinsiderssecrets.net/

Do you really understand the difference between leasing and buying? I'll bet you don't!

Are you planning to buy a new or used car? If so, you should understand the real differences between a conventionally financed loan and a lease. Regardless of whether you plan to buy a new car or a used one, leasing can be a very viable option, as long as you understand the difference

In general, leases are more likely suited to buyers who trade more often, drive fewer miles, take very good care of their vehicles (you will be accountable for excess mileage and condition) and have no desire to hold a clear title to the car they drive. (You can own the vehicle at lease end by paying or refinancing the residual)

Leasing enables you to drive a new vehicle more often or a vehicle you couldn’t normally afford. You’re not actually buying the vehicle; you’re renting it and paying for the use, not the vehicle itself. You can decide whether you want to own the vehicle at lease end.

Any questions about leasing should start with; is it an open or closed end lease? The only lease to consider is a closed end lease. Closed end leases make the leasing company responsible for the residual. Open end leases leave the consumer responsible. Aside from that important difference, leasing is just another way of paying for the use of your vehicle. In most leases the drive off fees are less than a conventional down payment.

Standard “drive off” fees would be the 1st months lease payment, title fees and a security deposit. (Usually equal to 1 month’s lease payment) If your credit is good enough the security deposit can be waived.

You can put money down but it won’t usually be a requirement, unless you’re stretching to qualify for a payment. Trade in equity can be used as cap reduction or you can get a check from the dealer. In either case cap reduction has no affect on the residual.

You can trade-in your leased car just as if you had financed conventionally at any time during the lease term. (There may be early termination charges)

Manufacturers love leasing because of something called “trade cycle management”. Studies have shown that consumers, who lease, will be back in the market for a new car sooner, are more likely to be brand loyal, and more likely to keep leasing.

Most manufacturer leases also require any payoff requests be made to the originating dealer; this allows the leasing company to provide the dealer with yet another benefit; Talking to the dealer provides him with a timely opportunity to recapture your business.

Lease terms can be shorter than purchase terms with similar monthly payments. Lease payments cover the portion of the vehicle expected to be used (depreciated) during the lease term, plus a rent charge, taxes and fees. This anticipated depreciation is the non-residualized portion of the lease.

The residualized portion is predetermined by the lease company (as a percentage of the MSRP) and is meant to imply the future market value of the vehicle. If, for example, the leasing company, using the vehicle and term of your lease as factors, dictated a residual percentage of 37%, you would make payments on the remaining, non-residualized, 63%. You should have no responsibility for the residualized portion of the lease. Your capitalized cost (purchase price) would be the total of the residualized and non-residualized portions.

It’s important to note that the residual is a percentage of the “MSRP” (manufacturer suggested retail price) and has nothing to do with the capitalized cost. In some cases, especially with factory sub-vented leases, the dealer is allowed to increase the residual base by adding certain invoice items, like “value added equipment packages”. Be sure to ask your F&I person to confirm that the residual is maximized to get the lowest payment. Even if you know that you will purchase the vehicle at lease end you want the highest residual possible as that amount is NOT financed and DOES NOT accrue finance charges, whereas you DO pay finance charges on EVERY penny that is not residualized.

Don’t let the terminology of leasing confuse you:

• The purchase price is called the capitalized cost, or cap cost.

• Down payment is called capitalized cost reduction.

• The balance financed is called the adjusted capitalized cost

• The residual base is the “MSRP” of the car, plus any allowed add-ons. (the number your residual is calculated from, regardless of the price you have negotiated)

• The residual is the cars estimated value at the end of the lease (set by the leasing company) (this is the portion of the car that you don’t pay for)

• The finance charge is called the rent charge.

The cap cost, just like a purchase price is subject to negotiation. Don’t discuss leasing until you have the dealers best price.

The lease term will affect not only the monthly payment but the residual as well. The shorter the term, the higher the residual. The longer the term, the lower the residual.

The residual is meant to imply the vehicles value at lease end, and since the age and mileage of the vehicle affects the value, it makes sense that longer terms would result in lower residuals. And vice versa.

Most leases limit the number of miles you can drive (12,000 - 15,000 per year) however you can purchase extra miles up front (you pay for extra mileage up front by allowing a lower residual & resulting higher payment, and there are no refunds if you don't use up your prepaid mileage allotment.) or pay for exceeding the limit when you turn the vehicle in. (usually 15 – 18 cents per mile)

You are also accountable for any damages beyond normal wear & tear. Any excess wear charge is determined at the time the vehicle is returned to the dealer. But there is a way to avoid these penalties:

Mileage penalties and/or wear & tear charges only apply if you are returning the vehicle to the lease company.

Mileage and/or wear & tear charges can be avoided by trading, buying or selling the vehicle. Your lease documents should disclose any penalties or fees

It generally takes better than average credit to lease. Some leases use a conventional interest rate but many use a money factor (rent charge). Money factors can be marked up by the dealer just like an interest rate (some lease companies allow for markups as high as 8%).

Dealers often make more money marking up the money factor than they do leasing the car. A money factor can look like a really low number, something like .00375. That seems really low, but when converted to an effective interest rate, it may not seem like such a good deal. Multiply the money factor by 2400 and you should get a good idea of the true cost of the lease. A money factor of .00375 converts to an interest rate of about 9%. Not all leases are required to disclose the money factor so make sure you ask for it.

Some lease companies require that you carry a higher level of liability insurance protection. Check with your insurance company to see how your rates will be affected.

At the end of your lease term you have a number of options.

A: Walk away: If the vehicle has been determined to be worth less than the residual amount (the amount necessary to pay off the lease company and own the vehicle) you simply notify the lease company and return the vehicle to the dealer. It was the lease company that set this residual and you have no obligation for it. You might have wear & tear charges or excess mileage charges to pay,

B: Trade or sell: If the vehicle has been determined to be worth more than the residual amount, you have equity. You can capture this equity by trading or selling the vehicle, with the residual being your payoff. Mileage and wear & tear charges are voided in this scenario.

C: Purchase: Pay the residual and any closing costs or finance the residual and keep making payments. Your payments should still be low as you've already paid off a portion of the original cap cost.

Here are some online sources for lease and residual information. Keep in mind that most manufacturer backed leases (sub-vented) use their own residual guides, but should still be pretty close to those found in the ALG guide.

LEASING GUIDES (you can find residual percentages here)

Automotive Lease Guide
Federal Reserve Board
LeaseSource

Intellichioce

You might also want to check out a website called Swapalease.com. This is a company that specializes in lease transfers. They offer the option to buy or sell a leased vehicle. Swapalease.com will help to find a buyer for the leased vehicle, enabling the lessee to walk away and avoid any mileage or wear and tear penalties.

You can find many more secrets, tips, tools and techniques to help you save thousands of your hard earned dollars each and every time you buy a car at The Insiders Secrets.