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Cash vs. Leasing vs.
Financing
Should I pay cash, lease or finance? This is the most
significant question consumers face when purchasing a new or
used vehicle. First and foremost, most consumers
don't realize that a car is a depreciating asset, not an
investment. During a vehicle purchase your mind set should
not be , "how do I make money", but instead, "how do I limit
my overall losses". Cars typically lose between 16-20% of
there value as soon as you drive it off the lot. That's why
it's most important that you understand and realize which form
of purchasing will best fit your individual needs, and here at
Red Carpet Leasing we help you do just that.
Believe it or not, when
trading in a vehicle for a new one, it is important to
understand trade value and quality before deciding on a
payment method. Too often consumers fail to realize that even
in cases of minor fender benders, trade values drop
considerably from what may be posted in Galves. A minor fender
bender can reduce a trade-in value by at least 2,000
dollars of Galves Trade-in value, just due to it being listed
on a car-fax report at all. Understanding this, will help you
chose the right payment method upfront and reduce your
potential loses.
* Most
Dealerships in the United States (Depending on the region) use
a book called Galves to determine trade-in values, not Kelley
Blue Book or Edmund's.
* If you are curious
about your trade-in value, you are able to go to
www.galves.com to get an accurate quote of your vehicle
for a nominal fee of $20. This allows you to see what a
dealer sees when appraising your vehicle prior to damage and
collision deductions.
Although cash is a
plausible way to purchase a car, it is not always
recommended. There are many
other ways to utilize the money you would essentially use to buy
a vehicle cash. Rather than putting all your money towards a
depreciating asset (Especially in
these tough economic times when
manufacturers are offering low apr's), it might be worth
investing it at banks or secured stocks that will give you a
higher returns. In case you're a consumer that takes comfort in
knowing that the majority of your debts are paid, and need to
put a substantial amount towards loans, many states in fact have
a no pre-payment penalty program. Which means that you can pay
more towards your loan than your actual monthly payment, and the
extra money each month goes towards the principal of your loan,
interest free. So initially you can put next to nothing down
and save or invest that money, and pay more towards the loan as
convenient for you. This method is not recommended in all
cases, but is a very solemn recommendation for those whose needs
it fits.
*For
further assistance figuring out if this method fits your needs
please contact us for more info.
This is the most common way
to purchase a vehicle. Candidates of financing tend to drive
more than the average driver, modify their cars, and/or hope to
keep their vehicles longer than usual. In most cases of
financing we suggest purchasing gap insurance and putting down
as little money as possible. Gap provides you with loan
protection, a vital protection needed in case of an accident
when a vehicle is being financed rather than paid cash for or
leased. Gap insurance covers the difference between the loan
amount and the actual car value, and is a necessity when you are
involved in a collision or theft, without this protection
you are responsible for the difference of loan to actual car
value yourself. Financing is a great way to purchase a vehicle
without having to put a lot of money down, but does not offer
the same assurances as a lease, without the right protections.
If you feel like you want your next purchase to be more of a
long term commitment, financing may be the right option for
you.
*In New Jersey for example, the
average driver drives anywhere between 12,000 and 15,000 miles a
year.
*The average driver keeps their
vehicles between 3-4 years.
*Through Red Carpet Leasing you
will receive gap insurance for near its cost, an uneducated
customer nearly always pays about 400-500 dollars over a dealers
cost for gap.
*In the unfortunate case of your
financed vehicle being totaled in an accident, gap insurance
covers the difference between what you owe on the car and what
that vehicle is actually worth. Without gap, you the customer,
are responsible for the difference.
*For further
assistance figuring out if this method fits your needs please
contact us for more info.
Leasing is a relatively new
way of purchasing vehicles, it was first introduced in the
1980s. Candidates for a lease, tend to drive anywhere between
12,000 and 15,000 miles per year, want a car that will always be
under warranty while they are driving it, and usually realize
its a much more practical decision for their needs. In the
beginning it was completely abused by dealerships to generate a
greater amount of profit per vehicle sold. When the leasing
option was first implemented, dealers registered the majority of
customers under something called an"open ended" lease, in which
residual values (buy-out) fluctuated at the end of the lease.
What this means is, that when customers went to return their
cars at the end of their lease, what was stated as the buyout
value originally, was an estimate, and if your vehicle was worth
less now, (even if appeared held up by the lease agreement) you
were responsible for the depreciated difference.
Eventually manufacturers realized what was going on
and regulated leasing altogether, creating "close-ended"
leases. Now the residual value, or the buyout value, is clearly
stated and documented on your contract prior to purchase , and
never changes under any circumstances.
If you happen to get into an
accident in the earlier years of driving your brand new
vehicle, more often than not, your car has depreciated
dramatically whether leasing, financing, or paying cash. When
leasing however, you are protected by the "closed ended" leasing
agreement solidified upon purchasing. So in many cases
leasing is a more protected way of purchasing a vehicle, leaving
you with endless options at the end of its term. If you
thinking leasing may be a practical option for you please
contact us for more details.
*"Closed Ended"
leasing creates set guidelines under the terms of your lease,
like residual value, gap insurance
*Residual
value is what your vehicle will be worth at the end of your
lease term, or what you can actually buy it out for at the end
of the lease if you chose to do so
*Most leases include Gap Insurance. Very few manufacturers sale
it as a separate product on leases.
*For
further assistance figuring out if this method fits your needs
please contact us for more info.
So, which is better, lease or buy?
It depends on what's most
important to you. All of us have different lifestyles and
priorities — in cars and in finances. Car lease-versus-buy
decisions must be made with your own lifestyle and priority in
mind. What's right for one person can be totally wrong for
another, and whats wrong for one person may be right for
another.
LEASE - If you enjoy driving
a new car every two or three years, want lower monthly
payments, like having a car that has the latest safety
features and is always under warranty, don't like trading and
selling used cars, don't care about building ownership equity,
have a stable predictable lifestyle, drive an average number
of miles, properly maintain your cars, and understand how
leasing works, then you should
lease.
BUY - If you don't mind
higher monthly payments, prefer to build up trade-in or resale
value (equity), like the idea of having ownership, like paying
off your loan to be payment-free after awhile, don't mind the
unexpected cost of repairs after warranty has expired, drive
more than average miles, prefer to drive your cars for years
to spread out the cost, like to customize your cars, expect
lifestyle changes in the near future, and don't like the risk
of possible lease-end charges — then you should
buy.
Hopefully this information
has helped determine what is the best option for your needs.
Understand that there is always a better solution for your
scenario, and if you need any further information, please feel
free to contact us directly with any questions or concerns.
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