Paying for a Vehicle Unit 9

Payment Options Cash – Pay for the full cost of the car with the money you have – Not usual, but a good option if you have enough cash – Why? No interest payments Loan (financing) – Pay monthly installments – Adds interest Leasing – Make monthly payments for a specified time period (1 year) – Must give the car back at the end of the leasing period

Buy or Lease? Benefits of Leasing Lease payments are usually lower than loan payments – In the short-run only Receive a new car frequently Benefits of Buying Cheaper in the long-run – Once the car is paid, it’s yours

Buy or Lease? Drawbacks of Leasing Mileage limits – If you go over them you have to pay extra Costly in the long run – You are always making car payments Drawbacks of Buying Cars depreciate value quickly – You may owe more than what the cars worth

Buying with a loan (financing) Shop around for the best interest rate – Dealers – Banks – Online credit businesses Down payment – Up front lump sum payment for the car – The bigger the down payment, the lower monthly payments and interest you’ll have to pay

Interest Rates You MUST consider both the interest rate AND the loan period – Loan Period = How long you will be paying for the loan – Low interest rates may be costlier over a longer period Ex. If you borrow $12,000 at a rate of… For…You’ll pay back $12,000 PLUS 4%36 months$ %48 months$1, %60 months$1, %36 months$ %48 months$1, %60 months$1,587.33

Low APR or Rebate? Dealers will typically offer you a choice of a rebate (cash back) or a low APR (interest) rate – Which one do you choose? Use an internet calculator (edumunds.com) to find out which is better

Quick Review 1.When you decide to pay for a car in cash, how much do you have to pay? 2.How are leasing and financing (loan) payment options similar? 3.What advantages does leasing have over buying? 4.Why should you make a large down payment? 5.In what situation would you want to pay a higher interest rate? 100% You make monthly payments Cheaper in the short run, newer cars more frequently Less monthly payments, less interest costs If it cost less with a shorter loan period