Weigh your options
Leasing a car is like renting an apartment: You pay a monthly fee to use it, and when your contract is up, you give the car back. The upside? You get to drive a brand spankin’ new car for a monthly fee that’s typically a lot less than if you actually bought it. (Translation: You’ll be able to afford a much nicer whip.) If you continue to lease, you’ll get a new ride (equipped with all the latest safety features) every two or three years. So it’s the perfect deal for all you commitment-phobes—as soon as you get tired of that wagon, it’ll be time for a new one (or perhaps truck this time). Plus, you won’t have to worry should something go wrong mechanically, since the car will be under warranty the entire time you drive it. The drawbacks? The mileage restrictions can add up if you’re not paying attention. (Word to the wise: Read the lease terms carefully before signing.) If you go over your allotted miles, you could pay an extra $150 for every 1,000 miles. So if you have a long commute or love road trips, leasing might not be the best option for you. You’ll also get charged a hefty fee if you decide to return the car before the end of your lease term (so don’t lease a two-door convertible if you’re planning to add to your family in the next few years). And keep in mind that at the end of the term, you’ll have nothing to show for all those monthly payments, since you have to give the car back. You do have the option to buy at the end of your lease, but you’ll have to pay the residual value (the difference betweenthe car’s original value and its resale value when you return it), plus a purchase-option fee. More often than not, you end up paying more when you lease and then buy instead of buying outright. So if you plan to eventually buy your own set of wheels, it makes more sense to look into financing instead of leasing.
Know when to buy
Go to the car dealership at the end of the month to get the most bang for your buck. Auto manufacturers set monthly incentives for their dealers, so if a salesman is one or two sales away from hitting his monthly mark, you could save thousands of dollars (or get that badass stereo system for free). Although you just missed all the year-end sales events, you’re in luck, because Presidents’ Day weekend—when car dealerships offer mega markdowns—is just around the corner. Dealerships often take advantage of this time, the first big shopping weekend of the new year, to boost sales by drastically cutting prices. Plus, manufacturers typically provide huge incentives (like thousands of dollars cash- back, low- and no-interest financing and sweet deals on trade-ins) for sales made over the holiday.
Research loan options Beware the extended warranty
If you’re going to finance your new ride, never just sign the loan agreement that the dealership or manufacturer offers—even if it sounds like the deal of a lifetime. (Trust us; it isn’t.) The dealer is typically the middleman between the lender (usually an independent finance company or a bank) and you, so most dealerships mark up the interest rates to make a profit. Meanwhile, automakers typically have their own finance companies—like Ally (previously GMAC) or Ford Credit—that generally offer really high interest rates (since they are willing to take on riskier loans than most banks). Bottom line: You’re better off going directly to the bank or finance company for a loan. So check with your personal bank or credit union before you start shopping—the interest rates are usually 1 or 2 percent lower. The difference may seem trivial now, but it could save you hundreds of dollars in the end. Once you are approved for a loan, the bank, credit union or finance company will then pay for the car on your behalf, and you’ll make monthly payments to the lender to pay back the loan (plus interest). Just keep in mind, that means you don’t technically own the car until you’ve completely paid it off—so you can’t really sell it before your lease period ends without financial consequences. No matter which lender you ultimately choose, be sure to choose the shortest term possible. The longer the loan period, the more interest you’ll accrue (and more interest = more money).
Before purchasing an extended warranty, make sure you need it. Most factory warranties (the one that comes with the car) are good for several years and a set number of miles (typically 36,000 miles) and cover essentials such as the air conditioner, radiator and compressor. If you do purchase an extended warranty in order to protect your investment after the manufacturer’s warranty expires, make sure it also covers all of those essential (read: costly to replace) parts, including the engine. And shop around: Warranties can be purchased through the manufacturer or a private company, and the cost can vary a lot
(up to thousands).
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