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trade-in

How to Make a Trade In for a New Lease

July 15, 2019 by admin 1 Comment

2017 Kia Sorento.

Think “trade in” and your mind probably equates that action with purchasing a new car. Although the majority of trade-ins are for a purchase — new or used — you can also trade in your vehicle toward a new car lease.

Just as a trade in can function as a down payment for a purchase, the equity in your car may also reduce your monthly lease payments. Most certainly, there are some relevant points you should consider before you offer your current vehicle as a down payment for a new car lease.

Lease Fundamentals

There are two matters to clear up first about new car leasing. We’ll do this before we examine the subject further. One important aside: contact an insurer, such as Allstate Insurance, to receive a quote on your new vehicle. Your insurance costs are one aspect of the ownership experience.

First, leasing is not the same as car renting. Leasing is based on the vehicle’s value when you sign the contract; it estimates the vehicle’s residual value at contract end. The most significant factor here is depreciation, representing the declining value of new cars over two, three or four or more years.

Car renting is typically a short-term business contract between you and a car rental company. You agree to borrow a car for a certain amount of days or weeks and then you return it. The rental rate is based largely on the rental company’s daily rate, insurance surcharges, and mileage overage fees.


2017 Jeep Compass.

Second, with a lease, you never own the vehicle, unless you opt to purchase it as stipulated in the contract. There are two types of car leases available: closed-end and open-end leases. A closed-end lease is also known as a “walkaway lease,” a contractual agreement that is settled when the lease term ends. In other words, a customer may return the vehicle to the dealership, sign paperwork and then walk away. There may be additional expenditures disclosed, such as wear and tear and mileage overage costs, but the contract ends once all obligations are satisfied.

With an open-end lease, also known as a “finance lease,” you will face a balloon payment at lease end. In particular, this means that you either must come up with the funds to make the payment or you will need to finance the vehicle. As you might guess, the overwhelming choice is for the lease option that lets you walk away — a closed-end lease.

Purchasing v. Leasing

Approximately 11 percent of people pay cash for a new car, according to CNW Market Research. Another 70 percent finance their new vehicles, and the rest choose to lease.

Leasing has grown in significance over the years as the price of new cars continues to rise. That $42,000 sport coupe you have your eye on would cost you dearly to purchase. If you put 20 percent down ($8,400), you are looking at financing $33,600. Finance that amount for five years at a 4-percent APR interest rate and you will be facing payments of about $619 per month. Not too many people can afford a big down payment and high monthly payments, let alone the insurance, taxes, and tags that would increase your effective cost.


2017 Chevrolet Cruze.

With leasing, the amount you would pay per month is based on what the car’s projected worth is at the end of the lease. That same $42,000 sport coupe might drop in value to $26,000 after three years, representing its residual value. Thus, your lease would be based on the $16,000 remaining, not the vehicle’s full purchase price. Without other costs considered, you are looking at a lease payment of $472 per month, which is about $147 lower than the monthly payments in the financing example.

Car lease deals vary, with some arrangements requiring no money down and as much as several thousand dollars required up front before you sign and drive. Even with the majority of no-money-down leases, you will usually be required to make at least the first monthly payment before you leave the showroom.

Lease Down Payment

Now let’s say you have a car you want to trade in and use its value (equity) as a down payment. That’s understandable, especially if a $472 per month lease payment is still a stretch.

To get a new car dealer’s perspective, Auto Trends turned to Rob Lombard, owner of Lombard Ford, Inc., in Barkhamsted, Conn., to get his take on trading in the car you currently own outright and using its equity as a down payment for a lease.

Lombard says the first matter any reputable dealer should address is to qualify the customer for the lease, which means verifying whether or not a lease is a good option for the buyer.


2019 Ford Mustang GT Premium.

“If a customer comes in and says that he puts 50,000 miles per year on the vehicle, the likelihood is that person cannot afford the monthly payment,” says Lombard. Lease payments are based, in part, on the amount of miles per year a lessee plans to drive. The higher the mileage limit, the more the customer will pay each month. Moreover, if a customer underestimates his or her mileage, an overcharge will be assessed at the end of the lease for each additional mile driven. Therefore, it is critical to make an accurate mileage estimate.

When asked about down payments, Lombard remarked, “We try to talk people out of large down payments as they do nothing on leases, but camouflage the real cost of driving that car.”

Still, if customers want to trade their vehicle in for a lease, no dealer, including Lombard, is likely to refuse them. Further, customers should do their homework and know the value of their car and negotiate with the dealer just as they would if they were financing.

The Final Analysis

Leasing a car allows consumers to get behind the wheel of a newer and more expensive vehicle than what they might be able to obtain through financing. On a final note, dealer Lombard warns that consumers should read the fine print prior to signing a lease contract, to ensure that they are aware of all costs related to the transaction.


See Also — How to Get Out of a Car Lease Early

Photos copyright Auto Trends Magazine. All rights reserved.

Filed Under: Ownership Experience Tagged With: closed-end lease, LEASE, lease terms, LEASING, Lombard Ford, open-end lease, purchasing, Rob Lombard, trade-in, walkaway lease

Should I Buy a Car Now or Wait?

December 8, 2017 by admin 2 Comments

A new car, truck, SUV or van may be in your future.

2018 Hyundai Elantra Limited.
2018 Hyundai Elantra Limited.

Besides reviewing cars on a regular basis — typically one or two new models week after week — I regularly dispense advice to friends who are shopping for a new or late model used car. Certainly, timing is everything when it comes to buying a car, but there are various times of the year when making a purchase decision is simply the right decision.

And to loosely paraphrase Queen Esther, “and such a time is this one.”

December is when we’re thinking about Christmas, especially decorating the home, preparing special meals, and throwing parties. But if you’re in the market for a car, you should seriously consider setting aside some time to find one as you enjoy the festivities. So, put down the eggnog and spend the next few minutes considering what I have to say.

Why is December so important? For two reasons:

2017 Audi Q7.
2017 Audi Q7.

1) dealers, with much manufacturer backing and incentives, want to clear their lots to provide space for new model year vehicles, and

2) manufacturers push hard to increase year-end sales in an effort to gain mark share. Yes, there are bragging rights going on for a number of categories, including best-selling car, truck, SUV, and so forth. The winners then advertise those results, thinking that you’re more likely to choose a best seller then consider some other model (often, consumers DO think that way).

It may seem counterintuitive for manufacturers to reduce their profits to increase market share, but that’s the way things work. Don’t feel bad for them, however. Most manufacturers can handle the big push. You just need to know how to save money when shopping for a car.

Here are some tips to keep in mind while shopping:

2017 Shelby GT 350.
2017 Shelby GT 350.

1. Year-end sales actually end in early Jan. Manufacturers post monthly sales, but those “months” don’t exactly correspond to the calendar. For the selling year, the calendar ends a few days into the next year. For example, 2017 new auto sales conclude at the end of business on Jan. 2, 2018. This means most dealerships will be open on New Year’s Day and stay open late the following day.

2. Bonuses are posted front and center. Year-end bonuses are advertised where you can see them: on the manufacturer’s website. And on dealer sites too. This week, I’m driving a 2018 Hyundai Elantra, so I went to the manufacturer’s website to see what specials are offered. Right off, there are $3,500 in cash offers (plus separate lease and finance deals) — $2,500 in retail bonus cash, $500 in holiday cash, and $500 in HMF cash. This means you can purchase a new Elantra SE for just $13,450. What a fantastic deal on a compact sedan!

2018 Mercedes-Benz C350e.
2018 Mercedes-Benz C350e.

3. Not all offers can be combined. Just because an offer is published, doesn’t mean you qualify for them. For instance, the Hyundai offer for $500 HMF cash means you accept the manufacturer’s financing arm’s standard financing rate instead of its promotional rate. That promotional rate currently stands at 0-percent APR financing for 72 months PLUS a $1,000 HMF bonus cash offer. Here, you’ll get the promotional financing rate and apply bonus cash to your down payment, but you won’t get the extra $2,500 for taking the special financing offer. Here’s my recommendation: arrange your own financing BEFORE you shop for a car, then take whatever offers are available. By the way, the special offers are usually on dealer stock only — not on the model you order.

4. You’re not eligible for every offer. Read the fine print of every offer you find. On closer inspection, you may find restrictions. One of the biggest restrictions says something like this, “…subject to credit approval from XYZ Finance and open to very well qualified buyers only.” This means you need a high credit score, typically at least 700, but maybe 750 or 800 or more. Know your score before you shop: you can get a rough estimate of your current score by visiting CreditKarma.com.

2017 Jeep Compass.
2017 Jeep Compass.

5. Research and shop online. The Internet has made it easier for shoppers to purchase a car. Dealers share their inventory online and the vehicle you want can be viewed thanks to numerous photos and usually a video. If you see something you like, then reach out to the dealer. Arrange a test drive only when you’re ready, but don’t wheel and deal at the dealership. Do all your negotiating online and check out other dealer inventories. This also means knowing what vehicle you want — down to the make, model, and trim level.

6. You’ll make more money selling your trade privately. Yes, I know: selling a car to a private party is a pain! It can also prove dangerous if you’re alone and don’t know the person coming to your home to test drive the car. That said, if you can sell privately, you’ll likely fetch more money than you would get from the dealer. Regardless, when deciding on a purchase price for a new vehicle, don’t discuss the trade-in until AFTER you make a deal. Sales staff love to confuse things by bundling both transactions under one deal. You’ll lose money if you allow this to happen.

2018 Volkswagen Atlas.
2018 Volkswagen Atlas.

7. Don’t wait as deals disappear and inventories shrink. The sooner you can make your purchase decision, the better. Dealer inventories on outgoing model year vehicles are dwindling. Incidentally, these vehicles typically have the best offers. If your schedule is so full and you can’t seal a deal before Christmas, the week between the Christmas and New Year’s Day holidays can work, especially if you’re looking for a new model year vehicle or a late model used car.

Let’s Make a Deal

Buying a vehicle should never be rushed! Avoid as much pressure as possible — sales staff are wheeling and dealing — their bonuses rely on making a deal. To them, you’re a deal just waiting to happen. Be prepared for an emotional onslaught.

If you’re purchasing a late model used car, insist on a vehicle history report. Even then, they’re not comprehensive or perfect. (Here is an excellent article that details the limits and sometimes the pitfalls with vehicle history reports — Limitations and Problems with Carfax or any Vehicle History Report).

Know what warranties are offered (e.g., the balance of the new car warranty, powertrain, and corrosion) and any special guarantees with your vehicle.

Finally, there’s nothing wrong with taking a friend with you when you purchase a car, especially if you are single. Not all dealers “get” women, with some sales staff directing their conversation to the man, even if it is the woman making the deal. That’s one more reason why it is important to get your final price in writing online BEFORE heading to the dealer, then telling your dealer contact that you’re the one he or she must talk with, not the individual with you.

2017 Lincoln Continental.
2017 Lincoln Continental.

See Also — Are Pull-Ahead Lease Offers a Good Deal?

Photos copyright Auto Trends Magazine. All rights reserved.

Filed Under: Special Tagged With: 2017 cars, 2018 cars, CAR SHOPPING, consumer tips, Internet, NEGOTIATION, NEW CARS, online, trade-in, WARRANTIES

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