Car Loans, Leases and Vehicle Financing
Buy versus Lease Decision

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Car Loans, Leases and Vehicle Financing


There are a large number of companies in the USA specializing in vehicle financing. In addition, almost every bank offers their own programs as well. The interest rate you will pay can range from about 3% above the prime rate to 30% per annum, depending on your credit history.


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The rates shown below are sample rates for a client with a very good credit (FICO) score (720+). If your credit score is lower than that, you will have to expect a significantly higher rate of interest (APR). Your place of residence (ZIP Code) may also have an impact on the rate offered to you.

Current Car Financing Rates (Q2 - 2013)
Type of Financing 36 Month or Less 37-60 Months 61-72 Months
New Vehicle 5.54 % 5.64 % 6.75 %
Used Vehicle 6.74 % 6.94 % 7.39 %
Vehicle Refinance 4.75 % 5.00 % 6.10 %
If Seller is a Private Party 7.19 % 7.79 % 9.19 %
Lease Buyout 8.05 % 8.45 % 8.45 %

Since interest rates can change on a daily basis, please check rates before you sign any financing contract! Currently (Q3 2013), they are slighly lower than shown.

You can obviously take advantage of low or even no interest deals offered by the car companies. Another source of low interest financing are local credit unions and Savings and loan associations. Both might offer better rates than those shown.

The above are rates you can expect from institutions offering standard car loans.

Based on the above, and as a guide only, your monthly repayment rate for some selected amounts for a new, or used, car are shown below. In addition, to your Financing Costs, you will have to add your monthly Operating Costs (maintenance and insurance etc).

Sample Monthly Repayment Amount for a Car Loan - 48 months
Amount of Loan US$ 10,000 20,000 30,000 40,000 50.000
New Car -
Excellent Credit -
7.0 % APR
Monthly US$
239.46 478.92 718.39 959.85 1,197.81
New Car
Acceptable Credit -
10% APR
Monthly US$
253.63 507.25 760.88 1,014.50 1,268.13
New Car
Poor Credit but no defaults, charge-off's or bankruptcy-
12.0% APR
Monthly US$
263.34 526.68 790.02 1,053.35 1,316.69
Used Car
Excellent Credit -
8.0 % APR
Monthly US$
244.13 488.26 732.39 976.52 1,220.65
Used Car
Acceptable Credit -
11% APR
Monthly US$
258.46 516.91 775.37 1,033.82 1,292.28
Used Car
Poor Credit but no defaults, charge-off's or bankruptcy-
13.5% APR
Monthly US$
270.76 541.53 812.29 1,083.05 1,353.82

Buying a car involves more than a down payment and monthly payments. In your budget you will need to include the Operating Costs, made up of of taxes, licensing and registration, as well as monthly insurance costs and maintenance.
Add the Operating Costs to the Financing Costs.
Gas Costs have not been added, since driving habits are far too individual, to provide meaningful guidelines.

Operating Costs (excluding Gas) of New Car
Total Costs of Purchase (excluding local Sales Taxes)

Down payment
Financed


12,000

2,000
10,000


24,000

4,000
20,000


36,000

6,000
30,000


48,000

8,000
40,000


60,000

10,000
50,000
Approximate monthly Maintenance Costs *) for a new Car (based on 12,000 Miles annual use) 70.00 120.00 140.00 170.00 190.00
Monthly Insurance Costs**) Basic Liability plus uninsured Driver plus Comprehensive with $500 deductible 75.00 90.00 100.00 120.00 140.00
*) The maintenance costs will obviously depend on the type of car you are buying. It will include tires, brakes, oil changes, tune ups, exhaust and other consumable repairs
**) Insurance costs will depend on the drivers driving record and the location of the vehicle. The costs shown are just a good average for someone with a clean driving record. Remember, that the lender will require you to have comprehensive insurance.

Car Loans For Bad Credit


About Co-Signing for Vehicle Loans


The Federal Trade Commission's Consumers publication, "Co-signing a Loan." gives some good guidance and warning about co-signing loans. It says,

"When you're asked to co-sign, you're being asked to take a risk that a professional lender won't take.............. In most states, if you co-sign and your friend or relative misses a payment, the lender can immediately collect from you without first pursuing the borrower. In addition, the amount you owe may be increased -- by late charges or by attorneys' fees -- if the lender decides to sue to collect. If the lender wins the case, your wages and property may be taken."

In addition, if you live in a community property state, your wife or husband may also be affected. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska allows couples to elect community property treatment.

Never co-sign for an auto loan. Yes, they may be a great friend, or your own flesh and blood. But it's never a good idea – especially if you aren't planning on having to pay off the entire loan when the person who signs for it defaults.



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Car Leasing vs. Car Buying


Car Leasing vs. Car Buying There are many different factors to consider when deciding whether to lease or buy a new car.

The processes of each are very different, with car leasing potentially being the more confusing of the two due to its vast terminology. However, below are some simple comparisons to help you decide which avenue is best for you.
 

Lease versus Buy
Car Lease Car Buying
Car Ownership: When you lease a car, you do not own the vehicle. A leasing company usually owns the vehicle, and lets you "use" it over a specified period. You get to use it within preset rules (annual mileage, insurance etc) but must return it at the end of the car lease unless you choose to buy it Car Ownership: You own the vehicle and get to keep it at the end of the term.
Initial Costs: The initial costs may include
  • the first month's car payment,
  • a refundable security deposit,
  • sometimes a capitalized cost reduction (like a down payment),
  • initial lease and documentation fees
  • taxes

Other costs such as registration and vehicle license are the same as for a purchase.

Initial Costs: You pay the full price for the car either in cash or through a loan.
Ongoing Costs: Monthly car lease payments are usually lower than monthly car loan payments because you are paying only for the vehicle's depreciation during the car lease term, plus rental charges (through which you also pay the interest), taxes, and administrative fees. Because leasing companies get better interest rates than you as an individual buyer. In addition, the lease contract will, at the end of its term, have a residual value (the purchase value for you, if you want to buy the car). Therefore the monthly depreciation charge will be lower than for your purchased car. Ongoing Costs: Monthly Car Loan Repayments if you financed the purchase
Buy-Out or early Termination Costs: You will be responsible for any early termination charges if you end the car lease early. There may be end of lease costs, if you have exceeded the amount of mileage (Excess Wear) allowed or if the general condition of the car, especially the interior is worse than could be expected, given the length of the lease period you had the vehicle. There are hefty charges for stains on upholstery, scratches on the leather seats, etc! Buy-Out or early Termination Costs: If you financed the car there is, most likely an early repayment charge on your loan. It is sometimes, euphemistically, called an administrative charge. Make sure that you know what that charge is, before you enter any loan agreement.
End of Lease Contract Payments: If, at the end of the lease period, you give the car back in good and clean condition and the use has been kept within the contractual miles (usually around 12,000 per year, but you can contract for a higher mileage at the start of the lease), there should be no further charges. Normally, you will be offered the car for the contractual lease-buy-out amount, which should be more or less equal to the blue book value.

If you have exceeded your mileage allowance, the charge will be between 12 and 15 cents per excess mile. If you do the lease-buy-out, you just pay the buy-out amount, without any excess mileage charges. The same applies to excess wear and tear charges.

End of Loan Repayment: When, after 4 to six years, you have paid off your loan, the car is yours and you should get the title for the car.

The total costs of a lease with a lease-buy-out at the end of the lease period usually works out more expensively than the straight forward financed purchase of the car. Though, if you are a business owner and you purchase/lease the vehicle as a company car, a lease might be to your advantage, since its costs are tax deductible.


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