Thinking about leasing? 10 things you need to know.

For many people, leasing is a great option.  You can drive a more expensive car for less money and get a new car every few years.  But before you jump in, there are several things you need to know.

1)      Leases are negotiable! – Believe it or not, some people think you can’t negotiate the payment.  I’ll explain how as we go along.

2)      Cap cost – this is the negotiated price of the vehicle.  You can talk this down in the same manner as if you were buying.  Some dealers might lead you to believe that the cap cost is set in stone.  Don’t believe them.  Have them negotiate or leave!

3)      Cap cost reduction – this is where rebates, incentives, trade-in or cash down are applied.  When you see a manufacturer offering low lease rates, they will often include an incentive here to drive down the monthly payment.  They might also be quoting a low mileage lease (10,000 miles) to lower the amount.  Remember that on average, people drive close to 15,000 miles per year!

4)      Money factor – this is the interest rate of the loan, but it’s not given as a percentage.  You’ll typically see it given as a 4 or 5 decimal number (.0012).  The way to convert this number to APR is to multiply it by 2400 no matter the length of the loan.  For example, a money factor of .00297 would actually be an APR of 7.13%.  Be sure to do the math!

5)      Residual value – this is the best guess of how much your car will be worth at the end of the lease.  It can be given as a percentage or actual dollar value.  Low mileage leases typically have the lowest monthly payment because the residual values are higher.  It works the other way if you choose a lease with 15,000 miles per year.  This is non-negotiable and is based upon data compiled by the manufacturer and dealer.  A good rule of thumb is to go with cars that have a residual value greater than 50% after 3 years.  Anything less than that gets more expensive.

6)      Lease term – this is the length of time that you will be paying for the car.  Typical terms are 24, 36 or 48 months.  There can be some different ones such as 30 or 39 month leases.  I would not take a lease for longer than the general bumper to bumper warranty, with the average being 36 month, 36,000 miles.  That way you’re not stuck with repairs after the warranty expires.  Also be sure to check the over mileage penalty.  If you go over the limit, this could add quite a bit to your overall cost.

7)      Know what you’re paying – over the term of the lease, you’ll be paying for the difference between the Cap Cost (minus reductions) and the Residual Value.  This amount will be charged an interest rate and then your monthly payment is calculated.

8)      Sales tax – your sales tax is calculated off of your monthly payment.  So if your monthly payment is $320 and your sales tax is 7%, then your payment will be $342.40.  No way around this!

9)      Gap insurance – you need it!  This insurance will cover the difference between what you owe (your lease contract) and what your insurance company says the car is worth.  This is most important at the beginning of your lease.  Here’s an example.  You lease a new car valued at $30,000.  After 1 month it’s totaled in an accident.  You still owe the equivalent of $28,000 ($11,500 + $16,500 residual), but the insurance company says it will pay $24,000 (value after depreciation).  You are on the hook for the $4,000 unless you have gap insurance.

10)   Shop around – You can shop lease deals around the same way you can if you were buying.  See who has the best offer and service.  Ask for the quote in writing and have them include all of the numbers I listed above.  That way you can compare apples to apples.  Ask what money is due at signing and if that includes the first month’s payment. 

Now you’re equipped with all the information you need to make an educated decision.  Take your time and crunch all the numbers.  A change in any one of those numbers can significantly affect your monthly payment.  As always, feel free to ask me if you have any questions.

Next week we’ll look at the factors that help you decide if buying or leasing will be your best option.

How to have an effective test drive

So you’ve made the decision to look for your next car.  It’s a big step because you know that once you start driving new cars, you’re much more likely to buy that new car.  The salesmen know this too and that’s why they want to get you in the car!  But as you begin driving different cars, you need to be sure you’re doing all you can to evaluate each vehicle.  How do you do this?

Step 1 – Allow yourself plenty of time.  This is not something to be rushed and you’ll want to leave adequate time to drive each car.  I allow an hour for each car my clients will be driving.  That way we’re not rushed and can enjoy each car as much as the first one.

Step 2 – Ignore the pushy salesman.  It’s about you during the drive and you need to stay focused.  If they talk too much, ask them to be quiet.  It’s not rude because they are there to help and serve you.  Your mission during the drive is to learn all that you can about the vehicle.

Step 3 – Establish a routine.  As you begin driving cars, you need to have a routine set up so you can evaluate each car equally.  Either go over it in your head or write out a list of what to check out.  You’ll want to repeat this for each car you drive so you can truly compare apples to apples.

Step 4 – Drive the model you want to buy.  A different engine, transmission, seating, or features can drastically change how a car rides and feels.  Try to find one equipped in the manner you would buy so you get a true feel of how it will drive if you buy it. 

Step 5 – Get acquainted with the car.  When you get in the car to begin driving, be sure to set up all the mirrors (side and rearview), seat height, windshield wiper controls, light controls, etc. for the way you prefer them.  It’s much easier (and safer!) to do this before moving.  Also check for blind spots in your front and rear views.  Listen to the radio to see how it sounds.  After that, turn it off so you can listen for other noises that might be masked by your music.

Step 6 – Don’t be shy.  This drive is about you and how you feel in the car.  Be sure to test the car’s limits (within reason!) for all the functions you’ll be using.

·         Acceleration – evaluate the car’s ability to accelerate on an interstate on-ramp.  This is a great way to see if the power is enough to get you up to speed when merging.  Also check how easily it can accelerate when passing.  Does the transmission downshift quickly or does it hesitate?  Try it with the A/C on and off to see if that makes a difference.

·         Braking – see how quickly the car can stop and how it handles.  It’s best to perform this in a parking lot or vacant road so you don’t endanger other drivers.  See if it pulls to one side or if you have difficulty steering it while braking.

·         Turning – take the chance to pull it into a parking space between other cars to see how easily it is maneuvered.  Also check the turning radius in an open space of parking lot.  A tighter radius makes for easier parking in a tight parking lot!  Check the visibility through the side and rear windows when pulling in and backing up. 

Step 7 – Add variety.  Be sure you drive on different types of pavement and roads during your drive.  Most cars sound and feel great on new pavement, but you need to see how they handle on rough pavement, concrete, etc.  Also choose a route that has a few twists and turns on it so you can feel the handling characteristics.  Is the car responsive or does it sway from side to side? 

Step 8 – Take notes.  Once you’ve completed your drive, write down your impressions.  Include things you liked and didn’t like.  This will be helpful when you’re driving several cars.  They tend to blend together after awhile and you might forget something that could bug you later.  These notes will help you when making a decision.

Step 9 – Walk away.  Now is not the time to make the buying decision.  You have the new car smell still present and you’re drawn to it.  Rational thinking is in short supply at this time!  You need to go home and work through the numbers.  This is where your notes will be helpful and you can make a rational and wise decision on which car to buy.

I also recommend that you take someone with you.  I go along with my clients to explain the features and to act as a buffer between them and the salesman.  They can focus on the car and only the car during their drives. 

So now you’ve driven each car you’re considering and have the notes to review and make your educated and rational decision.  Spending time in the seat of each car is a very important part of the car buying process.  If you don’t like something during the first drive, you probably won’t like it after a few months or years.  It’s best to learn that before paying for it!  With this plan you can enjoy your test drives and get an accurate impression of the cars you’re considering. 

Preparing your car for cold weather

With the recent drop in temperatures, it reminded us that winter and all that it brings will be here before we know it.  In order to be prepared for those cold winter months, its best to start now before the white stuff arrives.  So here is a list of items to have in your car and maintenance items to check or tasks to perform.

Items in your car

-          Blanket – to keep you warm in case you are stranded.

-          Jumper cables – these should always be there, but especially during the cold months when batteries like to die.

-          Extra hat and gloves – these can be wrapped in the blanket and will be helpful if you need to change a flat tire.

-          Kitty litter – keep a small box or bag of non-clumping litter or sand to use for traction if you get stuck.  Plus it adds weight for improved traction.  Just don’t overdo it because too much weight will hurt gas mileage.

-          Ice scraper – get one with a brush so you can remove snow on your hood and roof.  Also, be sure to scrape ALL of your windshield and not just a slot to look out.  Take the extra few minutes and be safe.  Removing the snow on your hood and roof will also prevent it from blowing off and blinding other drivers.

-          Duct tape – this can be used for quick repairs (broken window) or something else.  Watch MythBusters for ideas!

-          Matches or lighter – to light a fire to keep warm or signal for help.

-          Ziploc bag of TP – besides the obvious, you can also use it to start a fire.

-          LED flashlight – these last for up to 40 hours and can signal for help or let you view your surroundings.

-          First Aid kit – this should always be in your car, but just in case it isn’t, put it in now.

-          Food –items such as water, granola bars or power bars will help you if you’re stranded for any length of time.  Be sure the food will survive a variety of temperatures.

-          Backpack – not only can you keep all of these items in it, you can also use it if you need to abandon your car and carry the items with you.

Maintenance  Tasks

-          Washer fluid – top off your washer fluid with a type that won’t freeze.  It will also help to remove the salt spray on your windshield so you can see more clearly.

-          Battery check – have your battery checked for free at any local auto parts store.  If it’s close to dead, replace it.

-          Tire pressure – check all tire pressures, including the spare tire.  The guide for proper inflation is typically listed on the driver’s side door frame. 

-          Top off the gas tank – during the cold months it’s best to keep the gas tank above half full.  This reduces the likelihood of water freezing in the lines and stalling your car.  Plus it adds weight to your car for better traction.

-          Tires – make sure your tires have enough tread remaining.  This will improve traction and control during braking and turning.  You might also consider snow tires for even better control.

-          Antifreeze – make sure the level is full and it’s the 50/50 mix it should be. 

-          Wipers – put on new wipers to ensure the snow and ice is removed from your windshield while driving.

There are no guarantees in life, even if you perform all these items.  But if the worst should happen, you’ll be prepared to deal with it and survive with the only loss being time and nothing worse.  If you have any other items you include in your car, please share them with us.