How Does Car Leasing Work?

Car leasing is extremely popular because it offers a more affordable method of auto financing. It allows you to have lower monthly payments than with traditional auto loans. About one out of every five vehicles driven by automotive consumers in the United States are leased.

But car leasing is not for everyone. Is leasing good for a teen’s first car? What are the pros and cons of leasing?

Leasing is a little more complicated than buying with a loan, so you should take the time to learn about leasing, and be sure it’s right for you before making a decision.

What is a Lease?

Both leasing and buying a car with a loan are simply two different methods of financing. Where a purchase loan is a method of financing the ownership of a vehicle, leasing is financing the use of a vehicle for a specified number of months, similar to renting but not quite the same thing. Read the rest of this entry »

zero percent 0% car loan financingCar manufacturers offer special sales incentives every month on particular vehicle makes, models, and styles. Incentives vary from month to month.

Incentives come in the form of direct-to-customer rebates, special lease deals, and low-interest loans, including 0% APR loan deals. See Best Car Deals for current new-car incentives, including 0% loans.

Zero percent financing, when offered, means that the customer pays no interest or finance charges on his car loan. This saves money. Monthly payments are smaller and total costs are reduced.

Calculating payments for a zero percent loan is easy. Simply divide the cost of the car by the number of months in the loan. Non-zero-percent loans are much more difficult to calculate and require a car loan calculator.

Are 0% loans good deals?

Maybe.

Read the rest of this entry »

How do I know how much car I can afford?

Assuming you’ll buy with a loan, you will want to have a monthly car payment that will fit within your current income, after considering all your other expenses. Don’t make the mistake of buying based on future expectations — a forthcoming raise, a new job, or other potential improvements in your finances. Your expectations might not come to reality and you’ll be stuck with a car you can’t afford. Base your purchase only on current, stable finances. Read the rest of this entry »

How do I know what price to pay for a car?

Let’s say you see a nice used car that you like on a dealer’s lot that is priced at $14,000. Is it a good price? Can I talk the dealer down to, say, $12,000? How much discount can I expect to get?

These are all common questions when shopping for used cars, especially if it’s your first car.

Let’s look at the answers.

Used car prices can vary greatly – even for the same make, model, year, and condition. Prices tend to follow the laws of supply and demand. Large gas-guzzling SUVs are cheaper in times of high gas prices. Convertibles are more expensive in sunny Florida than in cold North Dakota. Used car prices are cheaper when dealers have too many on their lots.

Dealers are experts at knowing local car-buying customers, what they want, and what they are willing to pay. They set their used car prices accordingly. However, dealers make more profit on used cars than on brand new cars. This means there is a lot of “wiggle room” in used car prices – a relatively large difference between what the dealer has invested in his cars and the prices he sets for those cars. Unfortunately, there is no way for us as consumers to know what a dealer has paid for his used cars.

Check prices to know what is fair

The first step to getting a fair price on a used car is to find out how much the car is worth. Is the dealer’s asking price fair or not? If not, then it is time for some negotiation.

Some newcomers to car buying assume that there is some kind of “standard” price for used cars. It is not true. However, there are used-car pricing guides, such as Kelley Blue Book and NADA Guides, that compile data from a variety of sources to publish their version of suggested prices, based on make, model, year, equipment, mileage, condition, and region of the country.

These guides often differ significantly in prices for the same vehicle, same mileage, same everything. Confused car buyers often ask, “Which is right?” or “Which is more accurate?”  Neither is more right or more accurate. However, the guides serve as a good benchmark for determining a fair price for a car you may be considering to buy. For example, if a dealer is asking $14,000 for a car that the guides show as only being worth $10,000, he’s asking too much and it’s time to negotiate a fairer price.

If you don’t check prices

We’ve seen questions from car buyers who ask something like, “How much can I talk a dealer down on this $14,000 car?”  The answer to the question is really another question. It is not so much how much you can talk him down, as it is how much is the car worth?

For example, a dealer may put a $14,000 price on a car that is worth only $10,000. He hopes that he’ll get a customer who hasn’t done her price research and who will “talk him down” to $12,000. The customer is happy because she thinks she got a $2000 price discount, and the dealer is happy because he sold the car for $2000 more than it was worth.

Asking prices are not selling prices

Nearly all used cars are sold for a price that is less than the original “asking” price. Dealers post asking prices on used car window stickers. Individuals selling used cars advertise them with asking prices. Dealer asking prices may be 20% or more higher than selling prices. Individuals usually price their cars about 10% higher than the price they are willing to accept.

Negotiate based on car’s condition

If you find a car you like and the price seems fair for a car in good to excellent condition, make sure you get a mechanic’s inspection and have the mechanic document any problems he finds. Assuming the problems are not serious enough to stop you from buying the car, use the mechanic’s report to negotiate for a lower price.

Also get a Carfax vehicle history report and do the same thing. If the car has been in an accident, even if the repairs have been done expertly, use the information to try to get a better price.

Where to buy

Used-car dealers are an obvious source of  used cars but it takes time to visit and find out which ones have cars you might be interested in. One way to save time is use an online site such as CarsDirect.com that lets you search for discounted cars from dealers in your area.

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best car for teensOf all the cars available to teenagers, which are the best first cars?

If you simply want the fastest answer to that question, without explanation, we would say the Honda Civic is the best all-around car for teens. The Toyota Corolla would be a close second.

If you don’t like the Civic or Corolla there are other cars with similar characteristics and different styling that might suit you better.

But what is it about the Honda Civic, Toyota Corolla, and similar models that make them great as a first car for teenage drivers?

First, they are economical — relatively inexpensive to buy, inexpensive to insure, and inexpensive to drive.

It doesn’t cost much to buy a new or relatively new Civic. Used models might be a little higher priced that other brands but that works in your favor too. When you get ready to sell or trade, Honda and Toyota vehicles hold their resale value better than most. Read the rest of this entry »

What will my car payment be for a particular car at a particular price?

If you are buying a car with a loan, you may wonder how much you’ll pay each month for that loan. It’s not quite as simple as dividing the loan amount by the number of months of the loan. That’s because there are finance charges included as well.

Sometimes, novice buyers are shocked to see in their purchase loan contract that the total amount that will have been paid by the end of the loan will be an amount considerably higher than expected — because the amount includes the total of all interest.  All loan contracts are required by law to disclose this amount.

It depends on a number of things

The amount of your monthly car payment will depend on several factors in combination:

Read the rest of this entry »

refinance auto loanRefinancing your car loan can often lower your monthly payments.

Auto loan interest rates are hovering at the lowest rates seen in many years. If you are currently paying a high rate, you may be able to benefit by refinancing at a lower rate.

Depending on the value of your car and the amount you owe on your loan, you might even be able to refinance and get cash back out of the deal.

Refinancing an auto loan is similar to getting any other used-car loan. You might refinance with the same company with which you have your current loan, or you might go to a different bank or loan company.

If you bought your car new and financed your loan through the car manufacturer’s “captive” finance company, you might find that the company does not do refinance loans. In this case, you’ll have to go to a bank or loan company for your loan.

Loan rates vary between different banks and finance companies. Refinance rates are usually higher than new-car rates, but lower than ordinary used-car rates. Shop around for the best rates.

Read the rest of this entry »

How do I buy a car from an individual private seller — not a dealer?

When you buy a car from an individual, you pay with cash, a money order, or a bank cashiers check. The money can come from savings, a checking account, a family loan, or a loan from a bank or financial company. Most sellers do not like personal checks.

Buyers sometimes expect a private seller to “take payments” but any smart seller will not agree to such a plan. It is too risky. As a buyer, it’s better to get your own loan.

Requirements for a car loan

Loans from banks or finance companies require that you have a not-so-bad credit score, have an income sufficient to repay the loan, and have no excessive debts that might interfer with your ability to repay the loan. Loan companies do not want to give money to people who are unable to repay a loan.

Buying a car with bad credit – or no credit

People who have a bad credit history — a history of not making payments on time or of missing payments on other loans – will have problems getting a car loan. The lender will assume that if you have had problems in the past, there is a good chance that you’ll have problems again.

Read the rest of this entry »

fix old car or buy newShould I keep my old car and fix it up, or buy a new car?

Expressed another way, the question is this: Is it smarter, more practical, and more economical for me to keep and fix my old car than to buy another car, new or used?

This is always a tough one to answer. Generally, it’s going to be better to fix up an old car than buy a new car every five years or so.

However, the real answer depends on your particular circumstances. Here are some tips that will help you make a decision

How old is your vehicle?

Older, high-mileage vehicles are more likely than newer vehicles to have problems. There are exceptions, of course. Older vehicles also tend to have more serious problems, such as engine and transmission failures, that are expensive to repair.

Read the rest of this entry »

buy first carBuying a car for the first time can be an overwhelming experience.

There’s so much to know and how to know what’s important.

With this article, we’ll take some of the mystery away from the car buying process.

We’ll focus on the car itself in this article because we’ve already covered topics such as new versus used, financing, loans, best first cars, and more. Many new car buyers don’t completely understand how things like engine power, miles per gallon, safety equipment, and reliability factor into making decisions about what to buy. Incredibly, some novice buyers put more importance on color as a decision factor than almost everything else.

When buying a car, the old adage that “you get what you pay for” usually applies. A less expensive car will more than likely have lower engine power, fewer safety features, and lower reliability than cars that cost more. But how important are those things?

Read the rest of this entry »

buy car with bad creditBuying a car with a low credit score?

Having bad credit means that sometime in your past, possibly as far back as seven or ten years, you have had missed or late loan payments, repossessed property or cars, or have declared bankruptcy. You may also have an excessive number of credit cards with high balances. These factors are included in your credit history reports that come from three credit reporting agencies: Transunion, Experian, and Equifax.

Your entire credit history is summarized in a single number, called your credit score.

Your credit score determines if you’ll get approved for a car loan, how much you’ll in interest, how much down payment you’ll pay, and even how much you’ll pay for auto insurance.

Read the rest of this entry »

How Are Car Payments Calculated?

Car payments are based on how much you borrow, the interest rate, and the length of the loan.

The more you borrow, the higher the payments. The higher the interest rate, the higher the payments. The longer the loan, the lower the payments.

Unfortunately, the formula for calculating monthly car payments is not a simple one and can’t be easily done by hand or by a simple calculator.

It’s necessary to use an electronic business calculator, or by using an online Car Loan Calculator.

Simply plug in the numbers and get your answer.

Read the rest of this entry »

If you still owe more on your loan than your car is worth, you are upside down.

You may still be able to buy another car if you are upside down on your previous loan.

There are two ways to go about it.

One way to buy with an upside down loan
You could sell your old car but you will have to add extra cash to fully pay off your old loan. You’ll need to pay off your loan so that you can give a clear title to your buyer. However, coming up with extra cash might be a problem, especially if you are upside down by a large amount. For many people, this solution is not possible.

Let’s look at some other ways. Read the rest of this entry »

Figuring car payments is easy if you have the right calculator — it’s not easy math otherwise

car payment calculatorCar 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. Read the rest of this entry »

auto insurance for teensOne of the most bewildering aspects of car ownership for teenagers is that of auto insurance.  It raises questions about why it’s needed, why it costs so much, how it works, and what happens when accidents happen.

We have noticed certain questions come up frequently on online question-and-answer boards used by teen drivers. So we have compiled a “top 10″ list of those questions, with answers, that may help teen drivers better understand car insurance.

1. Q. Why do I need car insurance?

A. Two reasons: 1) It’s the law in most states. In order to drive, you must have at least minimum-coverage liability car insurance to protect others whose lives and vehicles you might damage or destroy in an accident that is your fault — even though you might be a good driver and know that you’ll never have an accident, and  2) To protect yourself and your family against financial disaster should you be sued for an accident you might cause.

2. Q. Why does car insurance cost so much for teen drivers?

A. Simple. Insurance statistics and police reports show that teens have more accidents than any other age group. Therefore, insurance companies are at greater risk of having to pay out claims for teenagers — which means higher rates to help compensate for that risk. The highest rates are paid by teen males driving sporty cars in highly populated areas. Rates can vary by state and city, and by insurance company. That’s why it is so important for teens who need insurance to shop around and get quotes from multiple companies.

Read the rest of this entry »

Lease vs Buy? What’s the Difference?

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. Read the rest of this entry »

car leasingIs it smart to lease a car? Is leasing a good idea? What’s wrong with it, if anything?

The answer is that there’s nothing inherently “wrong” with leasing a car. It’s a perfectly valid and popular form of automobile financing.

It’s not renting (often confused with apartment leasing). And because it’s a bit more complicated than buying a car with a loan, it’s very often misunderstood.

We often see advice from uninformed people on automotive question-and-answer forums advising other people against leasing. The reasons they offer are things such as, “it’s a dealer scam,” “it’s stupid,” “you pay all that money and don’t own the car,” “you’ll get hit with surprise charges and fees,”  or “it costs more to lease.”

There is some truth in all of those responses but it’s not as simple as that. These are oversimplified answers that create false impressions about leasing.

Let’s take a look at the real answers.

Read the rest of this entry »

We have been an expert participant on the Yahoo! Answers web site for many years, particularly in the Cars and Transportation section, Buying & Selling sub-section. We answer questions and provide advice about a wide variety of topics related to automobile buying, selling, insurance, maintenance, and car brands.

Although the Answers site is open to anyone, we have found that most visitors and questioners are teenagers and young adults who have had little or no experience in buying, selling, or owning cars. Their questions are natural and appropriate for someone who is doing some of these things for the first time.

The web site is quite popular and is very active. Thousands of questions are asked — and answered — each day. However, in our years of participation we have seen many of the same questions being asked over and over — and over — and over again.

We have compiled what we think are the top 10 questions that teens and young adults want to know about cars. Here they are.

Read the rest of this entry »

Better to Buy Pre-Owned Car, or New Car?

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 Car

  • 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 Read the rest of this entry »

Owning and Driving a Car is a Legal Thing

Licensing

In the U.S., drivers must be licensed to legally operate motor vehicles. Each state has its own licensing laws that set requirements, terms, and procedures. Minimum age is typically 16 years old, but can vary by state. Most states have special learner driving permits that serve as temporary licenses. Young drivers have have restrictions that restrict time of day for driving, who must be in the car with the driver, how many passengers can be in the car, and certain other conditions. Failure to follow the laws can result in license suspension.

The state agency that provides driver’s licenses is the Department of Motor Vehicles (DMV). In some states, the agency may have a different name, such as Department of Driver Services (DDS). Licensing laws and procedures for each state can be found at DMV.org.

In order to obtain a driver’s license, certain tests must be passed — a vision test, a written test, and a driving test. Some states provide sample test questions either in a license test study manual or on the state’s DMV web site.

License holders are provided with a photo ID card that serves as legal proof of being licensed. The license must be in the driver’s possession when driving.

Driving Responsibly

Your car exposes you to laws that you wouldn’t otherwise be concerned with.  At the low end are parking laws and speed limits. Some laws determine who is at fault in accidents. and how you should conduct yourself on the road. Other laws are more serious, such as those dealing with DUI and vehiclular homicide. Breaking driving laws can result in not only criminal charges but also personal liability charges.

Driving Laws

All states have rules of the road, the laws that determine what you can and cannot do while driving. Speed limits can vary, turn-right-on-red laws can be different. Since each state sets its own laws, the laws can differ considerably between states. If you move from one state to another, or travel to another state, you should become familiar with the new state’s laws.

Insurance

Most states have laws requiring automobile insurance. A minimum level of liability insuance is usually required, although comprehensive and collision coverage is not. Other states have financial responsibility laws that may not require insurance but you must prove you have the ability to pay in at-fault accidents. It is financially and legally irresponsible to drive without insurance.

Vehicle Registration and Tags

Motor vehicles must be registered to establish legal ownership and responsibility. Registration is typically handled at the state or county level. Metal tags are issued to be displayed on the vehicle. Registrations must be renewed each year. Fees and taxes are collected at the time of renewal. States have varying laws regarding how tags may be transfered between vehicles. Sales tax is usually paid at the time of vehicle registration.

Emissions Standards and Laws

State and Federal laws require that automobiles meet certain standards. California is particularly strict. All new cars must be built to meet Federal and state requirements. Many states and counties have annual inspection procedures to test emmissions and safety compliance.

Vehicle Sales Laws

When a vehicle is sold, it’s title must be signed by the owner and given to the buyer, who signs the title and takes it to his local DMV office to apply for a new title and new registration and tags. In some states, a notarized Bill of Sale is also required. If a vehicle is purchased without a title, the purchaser is not the legal owner even if money is exchanged.

Sales Tax

In most states, sales tax must be paid for new and used vehicle purchases. Vehicles moved from another state may also be taxed. Tax laws vary considerably between different states, especially regarding credits and refunds for taxes paid in another state. Some states also allow for sales tax credit on trade-ins at dealers.

Property Tax

Many states and counties impose an annual property tax on motor vehicles. The tax is generally based on the value and age of the vehicle. The owner of the vehicle is responsible for the tax. For leased vehicles, the tax is paid by the lessee (the party who is leasing and driving the vehicle).

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