Independent Used-Car Dealers – Independent used-car lots are a potential source of affordable cheap second hand cars. Many lots have older vehicles that can be real bargains, but might require a little work. You should take care to determine if the price is fair and that the vehicle has no hidden problems. Most used cars are sold “as-is” and come without any kind of warranty or return policy. Check out local used-car lots in your area but also consider large national or regional used-car dealers such as CarMax.

New-Car Dealer Used Car Lots - Many new-car dealers also sell pre-owned cars. Most new-car dealers only offer relatively late model used vehicles that have been taken in trade or are off-lease, and are in good condition — and are relatively expensive. But bargains can be found. Therefore, it doesn’t hurt to check out local new-car dealers but also look at other sources listed below. Some new-car dealers sell “certified” used cars — at a higher price. These cars have been inspected thoroughly and come with a short guarantee.

Buy-Here-Pay-Here (BHPH) Dealers – BHPH dealers are a different kind of used-car dealer that provides in-house financing, usually with no credit check. Most BHPH dealers are local and can be recognized by their “we finance anyone” or “no credit check” banners. Be aware that interest rates are usually very high and payment terms are strict. See “Should I Buy From a Buy-Here-Pay-Dealer Car Dealer” for more details.

Special Promtional Deals on New Cars- Don’t overlook this year’s (or last year’s) brand new cars as a potential source of good bargains. There are currently tons of heavy rebates and other incentives being offered by car manufacturers, especially on American brands, and especially on last year’s models, that can often make certain new cars less expensive than used cars of the same make and model. See New Car Rebates and Incentives.

Used Cars Online – Although the Internet is a good potential way to find cheap cars, take extra caution due to the possibility of getting scammed. If a deal seems to be too good to be true, it probably is. Craigslist and Autotrader are particularly frequented by scam artists. We recommend sticking with sites such eBay Motors, which has a buyer protection program (only for cars puurchased through the eBay site) and UsedCars.com, the Internet’s largest used car buying service, with over a half a million used car listings.

Lease a New Car – If your goal is simply to get low monthly car payments, leasing a new car can be 30% to 60% less expensive than buying the same car with a loan – cut your payments in half. This allows you to drive a brand new car for the same or less money than you might spend on a late model used car. However, be sure to read the free Lease Guide before you make a decision to lease. It’s cheap but may not right for everyone.         

Take Over a Car Lease - Take over a cheap car lease from someone who needs to get out of their lease early. Online services such as Swapalease offer car lease takeovers at bargain prices. These are almost-new cars being offered by sellers who are often desperate to get out of their leases. These can be excellent deals. It is the cheapest way to drive a almost-new car.

Government Car Auctions – This is an often overlooked source of cheap cars and trucks. Local, state, and federal government and law enforcement agencies frequently auction surplus and seized vehicles. Outstanding bargains are possible. To participate, you have to know where and when the auctions take place, and how to bid. See Government Auto Auctions for more details.

Damaged and Salvage Cars – Cars that have been damaged or salvaged can be a good source of cheap cars. See Damaged Cars for Sale for more details.  Salvage Auctions and Repossessed Car Auctions are other possible sources of cheap cars and project cars for sale. Obviously, a lot of caution must be taken to make sure you know exactly what you’re buying but, if done correctly, some great deals can be had this way.

Police Seized Property and Surplus Auctions – Law enforcement agencies seize and impound vehicles from law-breakers and sell them at public Police Impound Auctions, for bargain prices. Many are high-end late-model luxury vehicles in perfect condition. These agencies also sell Surplus Vehicles that are being replaced with newer vehicles. These auctions are conducted regularly and are open to the public.

Rebuildable Wrecked Cars – If you have mechanical skills, Buying and Rebuilding a Wrecked Car can be a way to a cheap ride. Cars that have been declared total losses by insurance companies can often be purchased as salvage vehicles and project cars for almost nothing. Many of these vehicles have little damage and can be rebuilt and restored to good running order for little money.

Unclaimed and Abandoned Car Auctions – Cities and towing companies pick up unclaimed abandoned vehicles every day from the sides of streets, highways, and parking lots. They try to find the owners, but if they can’t, the cars are sold at auction, often for almost nothing. The cars can range from junkers to almost-new vehicles. See our article, How to Find and Buy Unclaimed Cars.

If you are looking for a good cheap car, start with the suggestions above and remember to take extra caution to make sure you don’t get scammed and that you get what you pay for. Used cars are sold “as-is” which means that you have no right to get your money back once the sale has been made. It’s always a good idea to have your car inspected by a qualified mechanic before you make the purchase.

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We wondered about that question too. Are there certain cars that most people are buying, asking about, seeking information about, and asking for pricing on? What car makes and models are most popular? Are they the best cars to buy?

Well, we went to one of the most-visited used-car web sites, UsedCars.com, and found such a list. Actually, the site compiles a real-time list of the makes and models that their site visitors most often request information about, which is an indicator of the most popular cars.

The most-popular car list can change from day to day, but not by much. A vehicle that is #1 today might fall to #2 tomorrow, and vice versa, because the rankings depend on what online visitors to their web site are asking about and searching for on any particular day.  

Here’s the current list of most popular used cars at the time of this writing:

Notice that Honda is on top. Why? Because Honda is the most reliable brand of automobile. Used Honda cars will continue to run reliably almost forever if maintained properly.

The Ford F-150 is next. It’s the best selling make/model new vehicle of all time. No wonder it’s also in the top three of used cars too.

Toyota is just behind Honda in reliability and high-resale value, so it is no surprise the popular Camry model is on the list. Other Toyota models are popular too.

Then there’s the Ford Explorer, the most popular SUV, and the Ford Mustang, the most popular affordable performance car.

Finally, there are the Nissan Maxima and Altima, high in reliability and resale value, just not quite as high as Honda and Toyota. But many people like Nissan’s styling, particularly young people, better than Honda and Toyota.

Where to buy

If you prefer buying your used car from an individual private seller, you can find them in newspaper classifed ads, in free “auto trader” magazines at your local auto parts store or supermarket, and online on the Internet. We suggest you also look on eBay.com at their list of .

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Car payment calculation is not simple math. It requires a rather complex business math formula that is not easily done by hand and most people are not capable, or not willing, to take it on. It’s not as simple as dividing loan amount by the number of months in the loan. Finance charges (interest), which change every month, must be accounted for.

It’s much easier to use a hand-held business calculator, such as the HP 12c or HP 17b, or, even better, use an easy online auto loan calculator which does the math for you.

To use a car loan calculator, you must know the amount being financed, the number of months you want to finance, and the interest rate. You’ll also need to know the down payment amount, if any, and the value of your trade-in vehicle, if any. You also need to know the sales tax rate that applies to your home location, not where you buy your car.

How Car Payments Work

It’s a fact of life. Anytime you borrow money for a car, a house, or for credit card purchases, the lender wants you to pay an extra amount (interest) for your use of his money. The more money you use (borrow), and the longer your payoff term, the more you pay.

The way in which car loan payments are calculated sets a fixed monthly payment figure that includes two parts: 1) a part that repays some of the principal ( the amount you borrow), and 2) a part that pays interest (finance charges) on your outstanding balance.

Since your loan balance (principal) decreases with each monthly payment, the amount of interest in your payment also decreases and the amount going towards your loan balance increases. 

This means that in the early months of your loan, you pay a lot of interest and less principal. As you move toward the end of your loan, you pay less interest and more principal. In other words, you pay off your loan faster at the end than at the beginning. 

No two month’s payments are exactly the same in the amounts of the two parts, although the total payment is always the same (except for possibly the last payment which is usually less).

One possible problem with the way that car loans are structured is that the small amount of principal being paid in the beginning of the loan term may not pay the loan balance down as fast as the value of the vehicle depreciates.

This means you may be “upside down” — you owe more on your loan than your car is worth — during much of your loan term, which can be a problem if you decide to sell or trade before your loan is paid off, or nearly paid off. It can also be a problem if your car is stolen or totaled in an accident. Insurance companies pay you what the car is worth, not the amount you still owe on your loan. 

If you decide on a long-term loan (more than 48 months), or have a high interest rate, or make little or no down payment, or roll over negative equity from a previous car loan, you are almost assured of being upside down for most of your new loan term.

Some banks and loan companies allow you to make extra payments or pay more each month toward principle, which ends your loan sooner, lowers total finance costs, and reduces the chance of being upside down. Contact your bank or loan company to make arrangements.

Calculating car loan payments is easy if you use an online car loan calculator.

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New or first-time car buyers are often surprised at being turned down for a car loan because they have no credit history, which has about the same effect as having bad credit. Lenders want to see that a borrower has a good record with previous loans and credit cards. Without a history of credit, a borrower represents a risk to lenders.

It’s a familiar “catch-22″ situation in that you can’t get a loan to establish credit without already having credit. So what is the answer?

What is the answer?

The most common solution is to have someone “co-sign” your loan contract. Typicallly, it’s family member who has a good credit score. A co-signer plays no part in the loan unless the primary borrower fails to make payments. In that case, the loan company would have the right to seek payment from the co-signer.

A co-signer does not share ownership of your vehicle. If you pay off your loan on time and without problems, the co-signer has no further role, rights, or responsiblity. Their job is finished.

Even if you default on your loan and the co-signer has to step in and make payments, he/she still no owership rights. The car would still be in your name. Many people who co-sign do not understand this important point.

Another point important for co-signers to understand is that a co-signed loan or lease shows up on both the borrower’s credit report and the co-signer’s as a financial obligation or debt. This may affect the co-signer’s ability to get a new loan or lease for themselves. It increases their “debt load” which is a factor that is considered when one applies for new credit.

You should take care in selecting a co-signer. Since approval of your loan will depend on their credit worthiness, the person should have a strong and healthy credit history, a steady source of income, and not have excessive debt. For most new car buyers, this will probably be a close family member.

If you have already shown a history of financial irresponsibility, you may have difficulty finding someone who is willing to assume responsibility for your new obligations. Like the banks or loan companies, your potential co-signers may not want to take on the added responsibility and credit debt load. If the co-signer is not able to take over payment when the primary borrower defaults, both the borrower’s and the co-signer’s credit score are damaged.

If you can’t find a co-signer

If you can’t find someone who will co-sign for you, you have few other options. You may have to work out your transporation needs another way while you save enough money to get started with an inexpensive used car, while building your credit history so that you won’t need a co-signer the next time.

You could also try a used car dealer who specializes in working with people with bad credit, such as Drivetime.com. They have 78 locations around the country and offer a wide selection of used cars.

Summary

Getting a co-signer is a great way to start building your own credit history. If you make your payments on time, don’t skip payments, and don’t default on your loan, you’ll be in great shape for your next loan — without a co-signer.

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First time car buyers have a choice of buying a brand new car, or buying a used car. Which is better?

There are advantages and disadvantages to either choice. Most people would rather have a brand new car with its new-car smell and latest style, but there are reasons that a new car might not be the best choice. Let’s take a look at the pros and cons of buying new and buying used.

Advantages of Buying New

• You get a brand new car with new-car feel and smell
• You get the latest style and technology
• You get the latest safety equipment
• You get a full manufacturer’s warranty
• You get Lemon Law protection
• You get lowest loan interest rates, if you qualify
• You get the option to lease
• You may get special manufacturer-sponsored pricing and financing

Disadvantages of Buying New

• Value of a new car depreciates rapidly
• Insurance rates may be higher than used
• Taxes may be higher

Advantages of Buying Used

• You avoid the high first-year depreciation of value
• If you buy almost-new, you may get same styling and technology as new car, at a lower price
• You get price flexibility by choosing between different model years, mileage, and condition
• You may buy “certified” vehicles with inspection and warranty – at higher cost
• You get lower insurance costs than same new model
• You get lower sales tax and personal property tax

Disadvantages of Buying Used

• You buy “as-is” unless some manufacturer warranty remains
• Lemon laws don’t apply to used cars
• You may be buying someone else’s problem, unless you have your vehicle inspected
• You risk buying a wrecked or salvage vehicle, unless you run a CARFAX Vehicle History Report
• You typically don’t have a lease option
• You pay higher interest rates
• You may get fewer safety features

 Summary

To summarize, buying a used car can be a better value for your money but it comes with higher risks.

If you are looking for cheap used cars, read the article Finding Cheap Cars for suggestions on where and how to find them.

Find already-discounted used cars at dealers in your area at UsedCars.com, the largest online used car source.

For online pre-discounted prices on new cars, see Yahoo! Autos . Price quotes are free and easy. Get multiple quotes so that you can compare deals.

Any used car purchase should include an extensive test drive, an inspeciton by a qualified mechanic, and a CARFAX Vehicle History Report. Also consider buying an extended warranty.

If you’re considering an almost-new vehicle, make sure you can’t get the same vehicle, new, at about the same price, which can happen if the manufacturer is offering special promotional deals. See Best Car Deals for cars that currently have special incentives, rebates, and low-interest loans.

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This is a very common question with car buyers and owners.

The answer is yes, you can sell the car, but you must get enough money in the sale to pay off your loan, so that your bank can give you a “clear” title to give to the new buyer. This is where problems often arise. Let’s see how.

If you are upside down

If you are still paying on your loan, you still have an outstanding balance, which might be more than your car is actually worth. This means you are “upside down” and would need additional cash, after the sale, to fully pay off your loan. Loan companies want to be paid in full immediately after the sale. They won’t allow you to continue to make payments on a car you no longer have.

If you are not upside down

If your loan balance is less than the outstanding balance on your loan, then there’s no problem. You get the money from the buyer, use part of the money to pay off your loan and get the title, and put the remainder of the money in your pocket — possibly as part of a down payment on another car.

 How does it work?

Generally, a smart buyer will insist that he go with you to your bank so that he can write his check directly to the bank, have you add your additional cash if you are upside down, get the title immediately, have you sign over the title to him right then and there, and give him the car keys. That way, there are no delays and no mess. Nice and clean and quick.

Summary

So if you want to sell your car when you are still making payments, yes, it can be done. However, if you still owe more than your car is worth, it is much more difficult — and sometimes impossible.

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Since car insurance is so expensive, partiularly for young drivers, it’s natural that this question should come up frequently for first time car buyers.

You need insurance on your car to protect you from the risk of disasterous financial problems resulting from accidents,  personal injury and property damage, and loss by theft, fire, or natural disasters. It may seem pointless to spend so much money on something you may never need. But if you ever need it, you’ll be really happy you have it.

You might avoid insurance if you had enough money to cover such problems on your own.  This is called “self-insurance.” However, self-insurance is not legally sufficient in most states and is not practical for most people.

Financial responsibility laws in all states (except Wisconsin and New Hampshire) require automobile insurance coverage. The laws specify the type of insurance that is required and the minimum level of coverage. In most cases, liability insurance – bodily injury and property damage – is required, to help protect drivers from the financial risks of injury and damage caused to others in accidents. Other coverage may be required as well. The Insurance Information Institute publishes a table showing auto insurance requirements for all states.

If you purchase only the minimum insurance required in your state, you may be seriously under-insured. Many of these laws were put in place years ago and the mandated coverage amounts don’t reflect today’s higher accident costs. For example, some states require only “10/20/10″ liability coverage. This means the insurance only pays up to $10,000 for bodily injury to a single person in an accident, $20,000 for all persons, and up to $10,000 for property damages. 

Medical costs for someone seriously injured in a car accident can easily exceed $10,000. Damages to  an expensive luxury car can easily exceed $10,000. You can be held personally responsible for any costs above that which is covered by your insurance. Therefore, you should consider increasing your liability limits to a minimum of $100,000 for a single person and $300,000 for multiple persons.

The above mentioned state laws say nothing about collision and comprehensive insurance that covers your own vehicle. Young drivers often try to lower insurance cost by getting only the minimum liability policy required by state law. This can be a serious mistake. If you can’t afford to repair or replace your vehicle in case of an accident, you need additional insurance. Furthermore, if you have a loan or lease, your finance company or bank probably requires that you have collision and comprehensive insurance.

What if I drive without insurance?

If you drive without insurance, you can be fined, arrested, jailed, your vehicle impounded, or your license revoked/suspended, depending on the laws in your state.

If you have an accident and damage or destroy your own vehicle, the cost of repair or replacement is completely on you. If you cause an accident and injure other people or damage their property, you are subject to being sued. Don’t drive without car insurance.

You can get free auto insurance quotes from Netquote who works with all the major insurance companies to help you find the one that has the best rates for you. You are not obligated to accept any offer.

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You may go through your entire life and never have a car accident. But the odds are against you. Auto insurance protects you from potentially disasterous costs of such accidents. If you are buying your first car, you must understand how car insurance works and why you need it.

Laws in most states require that drivers have at least a minimum level of liability insurance – repeat, liability insurance – not collision or comprehensive, although lenders and lease companies may require full coverage, including liability, collision, and comprehensive.

Types of insurance
An auto insurance policy might include one or more of the following types of coverage:

Liability – Protection from costs associated with personal injury and property damage you cause in an accident. Legal actions against at-fault drivers is becoming more common and more expensive. . For this reason, liability coverage is the most important part of car insurance — and the part required by law.

Comprehensive – Protection from the cost of non-collision damages, vandalism, theft, weather-related damage, or natural disasters. Comprehensive coverage typically pays for the cost of repairs, or in the case that the vehicle is totally destroyed or stolen, the cost of a replacement vehicle – at “cash value” of the old vehicle. A deductible lessens the amount you are paid.

Uninsured Motorist – Protection from costs associated with an accident caused by another driver with insufficient liability coverage — or no coverage at all.

Collision – Protection from the cost of repairing or replacing your own vehicle if damaged in an accident. A deductible lessens the amount you are paid.

Medical – Pays medical costs to you or other parties for accidental injuries associated with an accident. There are limits specified in your policy regarding maximum amounts paid for each incident.

Towing and Labor – Pays cost of towing your damaged or disabled vehicle. Maximums usually apply.

Rental Reimbursement – Pays cost of renting a replacement vehicle after an accident. You’ll need this unless you have other cars you could use if your own vehicle is not available for a while.

Gap Coverage – Pays the difference between the amount owed on a loan or lease and the “cash value” paid by your insurance company in case of theft, fire, or accident. A gap waiver or gap insurance is usually provided with most leases, but not loans. If you are going to be “upside down” on your loan, it’s good coverage to have.

Manage your insurance costs

Beyond the minumum auto insurance requirements of your state laws, you can determine the kind of coverage you want, how much, what deductible, and what add-ons you want.

If you buy with a loan or lease, the finance company may dictate minimum coverage requirements. They may even dictate the maximum deductible you can choose. This protects them, and you, in case your vehicle is damaged or destroyed before your loan or lease is completed.

You can add higher liability coverage, beyond the outdated minimum requirements of your state laws, which can be a smart thing to do in these days of muti-million dollar lawsuits. If your auto insurance policy doesn’t cover the full cost of a large settlement, you may be personally responsible for the remainder. Additional coverage in the form of an “umbrella” policy can be purchased at little cost. One million dollars coverage is recommended.

You can increase your deductible amount. If you have sufficient cash available, you can set a high deductible, which can significantly reduce your premium. However, many people who set high deductibles really can’t afford to pay and take a chance that they will never have to. Not very smart. Set your deductible only as high as you can pay.

Dropping collision and comprehensive coverage is another opportunity to save money. You should only do it, however, if you can afford to buy a replacement vehicle or pay for repairs from your own pocket. This strategy is only recommended if you have an old car that that doesn’t justify the coverage – as long as you can afford to fix or replace it if you have an accident.

Improving your credit history can lower your insurance cost. Many insurance companies now look at your credit score and offer lower rates to people with high scores. They have conducted studies that show that people who manage their finances well have the lowest claim rate. You should know your FICO® credit score before you begin shopping for insurance.

The best way to get the lowest car insurance rates is easy. Having the Internet makes it simple to get multiple rate quotes from different insurance companies. This way, you can compare rates and go with the company you like best.

You can get free auto insurance quotes from Netquote . They work with all the major insurance companies and can find the one that has the best rates for you. You are not obligated to accept any of the offers. It’s a great fast way to shop for insurance.

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Auto insurance is one of those irritating expenses of car ownership that has no immediately obvious benefit. We pay and pay, and may never get anything in return. Teenage first car buyers are always a bit startled by the high cost of insurance.

Car insurance is one of the most expensive costs of owning and driving a car, especially for teenagers and other new drivers who can least afford it. 

In this article we’ll show you how and where to find the car insurance company for your first car that has the best rates and provides the best service.

We frequently hear the question, “Which auto insurance company is best?” or “Where can I find the cheapest car insurance?” or “What is the cheapest insurance for a 16 year old?” It would be nice if there were a quick simple answer to those questions. 

It’s a fact that you will find an insurance company that has the lowest rates for you, your car, and your personal situation than any other company.  But that same company may not have the lowest rates for someone else.  Because rates depend on so many different factors, and insurance companies are not the same in how they base rates on those factors, rates vary widely between companies.  

Furthermore, an insurance company that offers low rates in one state may have totally different rates in another state, or may not even be licensed to operate in the other state. That’s why it’s not as easy as saying that XYZ company has the cheapest rates. 

Teenagers bear the burden of the highest car insurance rates 

It’s  because teenagers cause the most accidents. Rates for a 16 year old male added to his parent’s policy can easily double the cost of the policy. Depending on the state he lives in, where he drives, and the kind of car he drives, rates could be in the range of $1000 to $3000 a year.

Choosing an insurance provider should be based not only on good rates but also on how well the company services its customers. A company with low rates but is difficult to deal with when you file a claim may not be a good choice.Here is a strategy we recommend for finding a good auto insurance company for your first car.

Learn from the experience of others

Visit JDPower.com for the results of a consumer study of major insurance companies, rated in terms of overall customer experience, policy offerings, prices, and customer service. Some of the companies only operate in a single state or only in a few states.  Not all companies are listed, especially many of those who operate in a single state.

Avoid those companies with the lowest scores. Consumer Reports magazine regularly surveys auto insurance customers from all over the U.S. Its most recent survey covered 27 insurance providers and ranks them in terms of overall customer satisfaction and fewest problems with customer claims.  It publishes results in its magazine (last published in the March 2006 issue) and on its web site at http://www.consumerreports.org/. There is a small subsciption fee but it’s well worth the cost. 

Get free quotes from multiple companies

Visit or call multiple insurance providers in your area and ask them for rate quotes. A much easier way is to get your quotes online. You can always go directly to insurance company web sites such as those for well-respected GEICO but it’s faster and easier to visit the site of a major independent broker such as Netquote .  

The benefit of an indpendent broker is that they work with many insurance companies and can do most of your legwork for you, at no cost to you. They know which insurance companies are licensed in your state, they know which have the best rates for your particular situation and needs, and they know which companies have the best service. Netquote is one of the best of this kind of service, but we can also recommend InsureMe.com. 

Check your Insurance Commissioner’s web site

All states have an office of the Insurance Commissioner. The purpose of the office is to approve, license, and regulate insurance providers in their states. Many states maintain a database of insurance companies and customer complaints against those companies, which is available for public viewing on the state’s web site.  You should check the database for problems with any insurance company you may be considering. Check this web site for links to insurance commissioners in each state.

Get your CLUE report and credit score

When you make claims against your car insurance, a record of those claims can appear in a little-known database called CLUE (Comprehensive Loss Underwriting Exchange). Insurers use the database to set your premium cost. Sometimes, even questions about your coverage to your insurance agent that do not result in a claim end up in the database. It’s common for errors to appear in the database, which directly affects what you pay for your insurance.

When you shop for new insurance, the company will order a CLUE report. If your information is inaccurate, you can be left without insurance while you work to correct the errors. You are entitled by law to get a free CLUE report once each 12 months from www.ChoiceTrust.com. The report shows you what insurance companies see about you. If you find errors or mistakes, you’ll be given instructions for filing a dispute.

Check your credit score

Most insurance companies also use your credit history report as a basis for setting your premium cost. They create an insurance score that is directly related to your conventional FICO credit score. If you have a low score that is related to late or missed loan payments or credit card payments, you’ll pay more for car insurance. Credit reports often have outdated data and mistakes that will increase your insurance cost.

You can get your credit report and FICO credit score from MyFICO.com . Look for mistakes and get them fixed as quickly as possible to minimize the affect on your loan rates and insurance cost.

Summary

Auto insurance for your first car can be expensive, but you can minimize the cost by shopping around for the best rates from the best companies.

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One of the best ways to decide between car leasing and buying with a loan is to directly compare the attributes of each, which we will show you in this article. We’ll tell you about how payments compare, about how fees are different, about advantages, and disadvantages.

Another way to help make a decision between leasing and buying is to compare the cost of each for a specific lease vs. buy situation. For this, you’ll need a special Lease vs. Buy Calculator.

Now, let’s take a look at how car leasing compares with buying with a loan.

How is car leasing different from car buying with a loan?

MONTHLY PAYMENTS
> Leasing – Monthly lease payments are roughly 30%-50% less than loan payments for the same car, same term because you only pay for the vehicle’s predicted depreciated value, not the entire value. The average vehicle will depreciate approximately 50% in three years.
> Buying – Monthly loan payments are higher because you pay for the entire cost of the vehicle, which includes the depreciated value. The average vehicle will depreciate approximately 50% in three years.

PAYMENT DUE DATE
> Leasing – Payments are due at the beginning of the month. Your first lease payment is due at the time you sign your lease contract.
> Buying – Payments are due at the end of the month. Your first payment is due one month after you sign your loan contract.

DOWN PAYMENT
> Leasing – Leasing does not require a down payment (“cap cost reduction”). However, some special lease deals may require a down payment in order to get the deal. Making a down payment lowers the monthly payment.
> Buying – Buying with a loan usually requires a down payment, as much as 20%. Making a down payment lowers the monthly payment.

UP-FRONT COSTS
> Leasing – Typically includes:  down payment (if any), first month’s payment, taxes, registration fees, and possibly a security deposit.
> Buying – Typically includes:   down payment, taxes, and registration fees. No security deposit is required.

SALES TAX
> Leasing – Sales tax is based on and paid with monthly payments (in most states), instead of all up front on the entire value of the vehicle. This saves money for the leasing customer.
> Buying – Customers pay sales tax on the entire purchase cost of the vehicle up front, but is usually rolled into the loan as an extra cost. If the customer sells the vehicle later, there is no partial sales tax refund. If he trades, there may be a tax refund — in some states.

SECURITY DEPOSIT
> Leasing – Leases sometime require a security deposit, which is returned at lease-end. The amount of the deposit is typically about the same as one month’s payment. Customers with good credit often don’t have to leave a security deposit.
> Buying – Security deposits are not required, although down payments are usually required, unlike leasing.

OWNERSHIP
> Leasing – Since leasing is designed to only pay for depreciation (with lower payments), you don’t build ownership equity. You return the vehicle to the lease company at lease-end, or purchase your vehicle for it’s depreciated value.
> Buying – By making higher payments, you not only pay for depreciation but also build up ownership equity. At the end of your loan, you receive the title and own the vehicle. It’s value, however, has depreciated and your ownership equity is significantly reduced.

INSURANCE
> Leasing – Laws in most states require you to have insurance. Lease companies require that you pay for insurance on your leased vehicle. The level of required coverage may be higher than is required by state laws.
> Buying – Laws in most states require you to have insurance. Loan companies may require you to have a minimum level of insurance to protect their interest in the vehicle. The level of required coverage may be higher than is required by state laws.

MAINTENANCE
> Leasing – Lease companies require that you keep your vehicle in good condition and maintain it properly. You are not required to have your maintenance done by a dealer.
> Buying – You are free to maintain, or not maintain, your vehicle as you like. However, if you expect to possibly sell or trade your vehicle in the future, the buyer may be interested in how the vehicle was maintained.

GAP INSURANCE
> Leasing – Most leases come with automatic GAP coverage, or a waiver, that pays off your lease if your car is stolen or totaled in an accident. It makes up the difference (gap) between what your insurance pays and the amount still owed on the lease.
> Buying – Loans do not come with GAP insurance. It must be purchased separately. If you will be upside down on your loan, which is very common, and should have GAP insurance to protect yourself in case of insurance shortfall if your car is stolen or totaled.

EARLY TERMINATION
> Leasing – The cost of early lease termination can be expensive due to the fact that your low monthly payments do not keep up with the rapid depeciation of your vehicle. You nearly always owe more on the lease than the vehicle is worth, until near the end.
> Buying – Ending a loan early by selling or trading can be expensive because payments may not have kept up with the rapid depreciation of your vehicle. You may be upside down, which means your still owe more on your loan than the vehicle is worth. This can happen if you rolled another loan balance into your current loan, made little or no down payment, or have a long-term loan.

END OF TERM
> Leasing – You can return your vehicle to the lease company, or purchase it for the price specified in your lease contract. Some fees may apply (see below).
> Buying – You own the vehicle and may choose to 1) keep driving it, 2) sell it for its depreciated retail value, or 3) trade it for its depreciated wholesale value. No fees are required at end of loan.

END CHARGES
> Leasing – Most leases require a “disposition” fee at lease-end as a kind of administrative fee for handling the return of the vehicle. The amount is typically about $350. The fee is not required, usually, if you choose to buy the vehicle at lease-end.
> Buying – There are no fees or charges at the end of loan.

MILEAGE FEES
> Leasing – Typical leases allow 10,000 to 15,000 miles per year. Additional miles may be purchased up front. Excess miles are charged at a rate of 15-25 cents per mile to compensate the lease company for the extra depreciation.
> Buying – Since you will own your vehicle at the end of your loan, any extra depreciation caused by high mileage is reflected in reduced resale or trade value for your vehicle. Miles aren’t free, regardless of whether you buy or lease.

WEAR AND TEAR FEES
> Leasing – If you have damages or excessive wear and tear at lease-end, you will be charged by the lease company for the repairs to restore the car to a good resellable condition. It’s better and less expensive to have the damages repaired yourself before returning your vehicle to the lease company.
> Buying – Since you will own your vehicle at the end of your loan, any extra depreciation caused by damages or excessive wear and tear are reflected in a reduced resale or trade value for your vehicle.

DEALER PROFIT
> Leasing – Dealer profit comes primarily from the negotiated sale price of a vehicle. Many customers don’t realize that lease prices can be negotiated and therefore give the dealer more profit than necessary.
> Buying – Most customers know that prices can be negotiated when buying, but often don’t. Fundamentally, buying and leasing offer a dealer the same profit potential.

BUSINESS / PERSONAL USE
> Leasing – Leasing offers similar benefits for both personal and business vehicle use. Business users can deduct lease expenses from taxes. Personal users cannot deduct.
> Buying – Buying is not as convenient for business users, who can deduct vehicle expenses, but not quite as easily as with leasing. Personal users cannot deduct.

FINANCING SOURCE
> Leasing – Dealers don’t finance leases. They hand off lease financing to the manufacturer’s finance company (Ford Motor Credit, GMAC, etc.) or a national bank. The finance company pays the dealer for the car and works out payment details with the customer. Independent lease sources are difficult to find.
> Buying – Dealers don’t finance loans. They hand off loan financing to the manufacturer’s finance company (Ford Motor Credit, GMAC, etc.) or a national bank. The finance company pays the dealer for the car and works out payment details with the customer. Independent loan sources are easy to find.

INTEREST RATES
> Leasing – Interest rates are about the same as for loans, and depend on your credit score. Lease rate is called “money factor” and can be converted to APR by multiplying lease rate by 2400.
> Buying – Interest rates are about the same as for leases, and depend on your credit score.

CREDIT REQUIREMENTS
> Leasing – Requires you have a good credit score, income, and reasonable debt. Lower credit scores will require a higher lease rate, and possibly a down payment and security deposit.
> Buying – Requires you have a good credit score, income, and reasonable debt. Lower credit scores will require a higher interest rate and higher down payment.

FINANCE COSTS
> Leasing – Total finance charges are usually higher for a lease than for a purchase with a loan. Low payments are slow at paying down the lease.
> Buying – Total finance charges are usually lower for a loan, assuming the same term. However, most loans have longer terms (in months) than most leases, which evens out total cost.

CALCULATING MONTHLY PAYMENTS
> Leasing – You can use an online lease calculator such as the one at LeaseGuide.com/calc.htm
> Buying – You can use an online loan calculator such as the one at AutoLoanCalculatorOnline.com

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