Wow, I'm sorry! I just keep asking and asking questions since I've joined!
So I barely know anything about auto financing. All I know is I have ever financed one vehicle ever and it was my husbands truck last march. Simple. $15K 2006 Ford F150, low miles, great condition and very simple process. USAA approved 15K, we bought it through a private seller and USAA wired the money to the man's NFCU auto loan to pay it off. Truck became ours and all we had to do was pay for registration and taxes. It's been a great truck and my husband adores it.
My dad bought my vehicle that I'm driving now back when I was freshly out of high school and competely paid for it. He gifted it to me and I had it transfered into my name. He is the one who helps me find the right price, checks out vehicles I like and helps me decide. My husband isn't really great at that kind of stuff. I've learned a lot through my dad and also reading online. I'm getting better at negotiating too, especially since I'm ready to buy my own vehicle anytime between now and May. As long as the price is right for what I'm getting.
As for leasing, I have no idea about it. I've always heard leasing was bad. Even my dad doesn't do leasing. Always finance in our family. But he admitted that he just doesn't know enough about it. I've tried looking into it and all I got from it is you have to have good credit score.
So how exactly does leasing work? Is it really that bad? Can't be that bad if people enjoy doing it, right? I ask because I would love a Ford Edge which would be perfect for our family of 4 come July. It's bigger than my car now for strollers and other baby stuff. But reading more into it, when we have our third child (hopefully within the next 3 years) it will start to get tight. So then I thought maybe the Ford Explorer. My husband thinks the explorer is over-kill right now and rather I go the Edge route.
Would it be better to lease the ford edge and then give it back 3 years later to upgrade to a bigger vehicle if it just doesn't fit our growing family? Or would financing be safer and sell it or trade it down the road?
So basicalper when you lease a car, you are agreeing to pay a portion what the car really costs, and agreeing to stay within your allowed mileage per year because once your leaseis up, you will be returning the car to the dealership.
i have leased 2 cars now, and I must say I absolutely love it. I like being able to get a new car every couple of years, as I used to do this anyway when our family financed vehicles and then we would end up losing money because of depreciation....I just get bored of cars too quickly. Also it's wonderful because the cars are under warranty and the cars I leased all have maintenance included for the first few years. Also payments are sooo much lower And you're driving a Brand new car.
However, I wouldn't consider a lease if you drive too much. Like more than 15000 miles a year or you don't really take care of your cars, because you will pay for all dings and scratches and if you go over mileage. ( However most companies offer extra packages that will cover these things) You also definitely need better credit to qualify for a lease.
I just love the flexibility of being able to try out cars and not be stuck with something I won't love forever.
and a few pointers before you lease,
1. Do your research! Search online and see what other people are paying for that car in your area. Go to Edmunds and fill out the lease calculator and aim to go lower and never higher than the suggested monthly payment.
2. Negotiate your price like crazy, dealers have the bad habit of assuming people feel that they can't negotiate prices on a lease. I just leased a 2013 Toyota venza 2 days ago. The car sales man initially offered me price of 485 per month NOT including tax stating that it is only 500 dollars over invoice. After a few threats and glaring eyes, we settles on $292 per month including tax!!!!
3. Call into the dealers and ask for the residual value for that make/model car after x amount of miles for x years. This will help you tremendously so you aren't just guesstimating.
also as a side note, have you looked into the Toyota highlander? They are offering an amazing lease deal this month, I think like 230 per month or something crazy like that.
What kind of scores does one need to lease? 720+?
So you can negotiate the price down from MSRP before leasing? For some reason I kept hearing people lease for the msrp price. Can you use all rebates you would as if your financing or just the special lease rebates?
well I would say at least a 700. I mean it isn't all about scores but the higher the better, as is to be expected. I negotiated price to almost 1000 under msrp and I got a 750 rebate that they had going on. I'm not sure if there are special rebates for financing vs leasing But they just told me what rebates are available to me.
Remember that your "car" FICO (or FAKO) is not the same score as your FICO. Auto financers usually use a hybrid score that weighs more heavily your experience with previous auto lenders. My score is now near 800, but a few years ago it was closer to 620 and my auto score was closer to 750. Even back then I was able to qualify for some of the best rates and offers because my auto lending history was flawless.
I agree with others about leasing. Leasing isn't really a bad thing unless you stick with the car and keep it until it's dead. With a lease, you're essentially getting a loan based on the depreciation of the car while you "borrow" it. If the car is worth $25K new and in three years it'll be worth $18K, then expect to pay that price, plus taxes. What I do not know is in the circumstance where you decide to buy the car at the end of the lease, do you have to pay sales tax on it again?! I don't know. The car isn't your during a lease. You have a contract to buy the car new and sell it at a pre-negotiated price back to the dealer at the end of the lease. That's essentially what a lease does. So, if the car is being bought back at the end of the lease and you want to buy it outright, you may have to pay sales tax for the 2nd transaction. Can anyone chime in on that?
Now, some of the benefits and cons of just financing the purchase of the car are that you don't have to stress about miles or scratches. I don't average more than 12K per year in miles, but I know I don't want to make decisions about long road trips based on "what if I go over." That's not how I live my life. I want to be in control. Also, when you lease and you walk away at the end, you are walking away with NOTHING. You had years of lower payments, but you had no equity you built up. If you buy the car and stick with a 48 or 60 month term, after three years of payments you won't be upside down. You'll actually have equity in the car for trade. The payments should be a lot higher than a lease, but there's an end to them at some point and it's a nice feeling to look up in Edmunds your car's value and find you could trade in with credit.
Well I just financed my first car (bought used before). I can tell you the main reason why I find leasing to be a really bad deal. I was suprised to find this missing from the websites that list the pros/cons.
People like leases because they want to drive new cars. The downside to this is that you are paying for the depreciation of the car during the years when it depreciates the most (when it's new). I find a lot more value in driving cars for longer. That's the tradeoff: new cars and variety vs. better value. Once you start leasing, it's probably hard to stop, leading to much higher total car costs over a lifetime. However, you may find it is a good idea to lease the car this time.
Car FICOs: TU 802, EX 782, EQ 781
I've never leased a car because I keep mine for 8-10-12 years, however long the poor thing keeps going. So after paying off the loan in 3 years, I have a car for 5-9 years with no payments (just maintenance, which does increase over time).
If you lease, you're always making that payment, never not making it.
Re the sales tax question. Speaking for most states that have sales taxe (the following experience is California), you WILL pay sales tax at the end of your lease IF you decide to buyout the lease and keep the car. This figure can be considerable it it's an expensive car. Happened to me with a 1990 luxury car. I leased the car for three years, decided I loved the car and decided to buy it after the lease was done. During the term of the lease, I paid monthly sales tax on the lease payment and never thought twice about it. At the end, the dealer gave me the buyout figure (around 22K) but never included the tax or that I had tax to pay... which then would have been around 1K. Some years later, when I went to give the car away (still running great), the State DMV alerted me to the tax I never paid and told me I had to pay it (now up around 2K with P&I) before I could transfer the title. I was floored and decided to just keep the car. There was no problem registering it year after year. Flash forward 20 years, I still have the car, moved to another state and tried to register it. As that required the transfer of title to the new state, you guessed it, the old California non-payment came back, and this time, with interest and penalties, totalled over 8K! The car was blue-booked for around 2.5K.
Anyway, long-winded anecdote to the sales tax question. I believe most states now (including California) require yoiu to pay sales tax upon buy-out from the dealer (or lender) before you can get a clean title.
Since you mentioned USAA, note that you might have some additional advantages:
1) USAA offers a car buying service for free, which ensures you get the best price. Be sure to use it, its fast and easy and can save you thousands
2) I believe USAA is a non-profit, which means since they are actually buying/owning the vehicle, you won't pay sales tax, which saves you based on you state tax rate. (True for NFCU, I assume the same is true for USAA). Note that if you buy the car at the end of lease, you will pay sales tax, but on the depriciated value of the car, I actually lease cars I intend to own for 8 years or more just to save about half the sales tax and pay it 3 years later, then pay the balance over another 3 years.
3) Skip most the add-ons and extra warranties they try to upsell you with, these are high markup items that haven't been pre-negotiated.
Many people are anti-leasing, because it was used to put people into cars they couldn't afford, or they got surprised with milage overcharges, or some firms recouped costs by being overcritical on wear-and-tear damages. I feel safe with USAA, but not many 3rd party leases
1) Use USAA's calculators to know what you can afford; I've seen car dealers refinance houses to stick people in cars they can't afford.
2) know how much you will likely drive over the period of the loan. Low-ball leases are often 10k/year or less, while the typical driver is nearer to 15k/year these days. You are better over-estimating up front than paying fees later
3) Know the terms of turn in before you sign, a good lease guarantees "Lease End Value" (you don't pay if its worth less than expected) and doesn't require you to sell it back to them if its worth more (If you can sell it for more, you keep the profit after paying the LEV). At least stop by Carmax and know what they will give you before you drop it off, and consider just buying the car off the lease, which can be a handy way of getting a good used car at wholesale, you even know the previous owner!
4) You won't have any equity in the car when you turn it in, so you won't get any mony back to make a down payment on your next car. So save up, or do what I do and don't put any money down. Since car loans have great interest rates, I'd rather use the down payment money to pay off credit cards or invest at a higher return. Getting you to pay up front for the depriciation is another great way to make lease payments low
I've bought my last two cars this way, leasing then buying off lease. Kept the first 9 years before giving to dad, I'm still driving the second 9 years later.