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Several months ago I was in market for a new car - I tend to buy new but also tend to own the car for 5-6 years, so not exactly running it into the ground, but also I do enjoy owning it for 1 or 2 years with no payments at all. I had owned my car for just about six years at that point, and while it still runs great it was also getting to a mileage and age point where it will get a little harder to sell, because it will get a little tougher to finance. So it was time to go car shopping!
I was looking for a vehicle with the MSRP in the $35-40k range, potentially a coupe, but also open to a sporty/performance-focused sedan. In time I had narrowed my list to the Cadillac ATS,...
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With the spring thaw finally upon us (more or less), the automotive world is gearing up for another summer sales season. While everyone assumes that direct mail is out as a marketing strategy, there are still a lot of mailers sent out, both by dealers and by manufacturers, as a way to present and promote vehicles. And again, as we described in our first article on auto ads (which focused on online ads), presenting a lease deal is particularly advantageous in the small space available, because lease deals require relatively few numbers and text to present the offer to the largest audience.
Recap: What the ad will and won't show
Any lease ad, regardless of the medium used (online, mail, newspaper/magazine, television, radio, billboard, etc.) will always show a few things to define what is being offered:
The monthly payment
The term
The amount...
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The auto buying experience has come along way; although it is still way behind other retail transactions of any size, and also slower and less convenient than other sizable transactions - in a lot of places the process of buying real estate, with a mortgage, still takes less time than a trip to the dealership where you show up knowing the vehicle you want and are paying cash. The most amazing thing is that while there's been substantial improvement in much of the process, the reputation of car dealers/car salespeople is still among the lowest of any profession in the United States, as well as similar nations like Canada, the United Kingdom, and Australia.*
It is baffling that people would be willing to do business with people they think are going to trick them. However, the results never seem to change:...
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No one likes to think about what might go wrong, and we totally understand - if something is uncertain it's much more enjoyable to imagine success; like your favorite team winning the championship, or a Nigerian prince selecting you to give millions of dollars to if you help him collect his billions (seriously, don't fall for this!). However, there are plenty of low probability events that are bad: that's why the insurance industry exists, and while you're sure to have insurance if you drive a car, there's more to know than simply making your payments on time to make sure you don't make a bad situation like a simple traffic accident worse.
Avoiding Excess Wear and Tear Costs
Getting into a car accident (at least one worth reporting) is sure to place the car's condition beyond the "normal wear and tear" zone...
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It seems like every retailer uses holiday weekends as a reason to put their inventory on sale, and advertise these discounts, and the world of auto retailing is no different. The manufacturers and dealerships know that consumers will use the extra time off to take care of one of the biggest purchases most people make, and that the deals and heavy advertising is needed to get folks to choose their brand and their dealership over all the other choices.
The Weekends to Watch
There are six holiday periods in particular that the automotive industry focuses on for its holiday-themed deals, although what you're shopping for may impact how great of a deal you can expect, as well as which holiday it is. Throughout the year the biggest holidays for auto sales are (chronologically, not sales volume):
President's Day Weekend
Memorial Day Weekend
...
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Getting behind the wheel of a new car is always exciting, but understanding the conditions of your lease is important in knowing that your getting a good deal, as well as helping you to drive confidently; knowing that when your lease is up, you won’t be paying unnecessary fees.
The Not-So-Fine Print
In your lease contract, the mileage allowance will be clearly spelled out. If you’re worried about potentially going over, it’s a good idea to assess where you’re at with your mileage. If your 36 month lease allows you to drive 15,000 miles per year, over the course of three years, your lease allows you to drive 45,000 miles. Only you know exactly how many miles you’ve driven each year, the lessor isn’t going to pop in after the first year to make sure you haven’t driven 15,001 miles and make...
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Do you have any idea what the easiest part of leasing is? The answer, to the detriment of the unprepared consumer, is advertising the lease deal! Think about the lease deals you've seen advertised before - on TV, in newspapers or other print, or even on billboards: all of them focus on just three numbers (in this order):
The monthly payment
The number of months
The amount due at signing / down payment amount
The advertisers then breeze through the other legally required details as quickly, or in as small of font, as their lawyers will let them. Comparatively, advertising a vehicle for purchase either needs to focus on the full purchase price, which is tens of thousands of dollars, or try futilely to advertise a single monthly payment for consumers with thousands of unique credit and down payment situations. So...
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You’re at the dealership surrounded by shiny, new vehicles. Your eyes are dazzled by brilliant colors, glittering rims, and your senses are completely overwhelmed with the rush of that new car smell. You’ve done the research and know you want to lease a new car.
You look up and the smiling car salesman is walking toward you. He shakes your hand and asks how he can help you. You mention the car you’ve had your eye on, and together you glide across the showroom floor. Here it is, your dream car, and you’re ready to slip into the driver’s seat and take her for a spin. The dealer takes your driver’s license, grabs the keys, and you make your way to the lot. Your fingers grip the steering wheel; its a perfect fit in your palms. The sun is shining, and...
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In part 1 of this series we set the stage for why leasing is better than borrowing because the rent charge is simple interest while the finance charge on the loan is compound interest.
Now, let's look at three cases: Great credit (3% APR), Good Credit (6% APR), and borderline Fair Credit (12% APR). Obviously these are simply a single point within what are three good size ranges, but this example is best because we're doubling the APR each time. Here's the deal, and we'll compare both financing and leasing:
Now, let's look at the impact of the 3%, 6%, and 12% APR (and equivalent money factor) on the actual monthly payment, the finance/rent charge, and the equity position after 36 months:
Notes about the table:
The bolded figures represent the better deal for the consumer for the given credit profile.
The "Net Payments...
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Albert Einstein reportedly said compound interest is the most powerful force in the universe. Of course, the earliest known written report of this statement was about 30 years after he died, so he wasn't in position to confirm or dispute saying it. But given the genius of the statement, we hope Mr. Einstein would appreciate it being attributed to him.
To understand why Einstein, or any genius, may utter this statement it may help to review the difference between compound interest and simple interest. Simple interest is where the interest that accrues doesn't get added to the principal to determine the next period's interest accrual. Basic example: the bank offers a deal where you deposit $1,000 on January 2nd and must come back each week and collect $1. The principal never increases about $1,000, but at the end of the year you...
