How to Save Money on Your Next Car Deal

Should You Lease or Buy Your Car?

Whether leasing or buying your next car suits you better depends on your personal needs and financial situation. However, consumer and personal finance experts generally agree, as Jack Gillis, author of The Car Book 2005, says, that "from a purely economic standpoint, it's always better if you buy." Paying cash down in full gets you the best deal of all, since you avoid interest charges, but even taking a car loan is better in the long term for your bottom line than a car lease.

Why? In the short term, a lease may seem like a good deal because monthly lease payments will almost always be lower than monthly loan payments. That's because the sum of your loan payments covers the entire price of the new car, while the sum of your lease payments covers only the price of the car for the time you lease it, typically 24, 36, or 48 months. When you buy, you still have the car after you've paid it off and can either sell it, allowing you to recoup some money toward your next car, or continue to drive it. Once your lease is done, of course, you have nothing to show for your investment.

For some drivers, though, the decision isn't just about the bottom line. People who prefer leasing like the fact that they can drive a new car every few years and turn it in before regular repairs start getting expensive or time-consuming. They're also assured of having the latest in comfort, style, safety, and fuel efficiency. If those are your priorities, leasing may indeed be the most desirable option. However, there are restrictions built into leasing, which may be deal killers for some. For one, leasing companies limit your mileage, usually to between 10,000 and 15,000 miles per year. If you exceed your mileage allowance, you'll pay a fee, typically anywhere from 15 to 30 cents a mile, depending on your contract. If you plan ahead, you can often negotiate your mileage allowance at lease time. Sometimes you can even pay for additional miles up front, but you won't get a refund for any miles you pay for and don't use.

Another point to consider as a potential leaser is how much damage you're likely to inflict on your automobile. If you tend to get into fender benders or if your two hyperactive Labs are frequent passengers, leasing may prove costly. When you return the car, the leasing company inspects it carefully for dings, scratches, mechanical problems, worn tires, stained upholstery, and any other damage or blemishes, and penalizes you for any problem that exceeds what they consider "normal wear and tear." And even trying to preempt the charges by taking care of repairs in advance is unlikely to save you much. "Whether you're paying a penalty or having damage fixed yourself," says Rob Gentile, associate director for Consumer Reports auto price services, "it can add up to quite a bit." 

Finally, if you lease your car, some leasing companies may ask you to carry "gap insurance," says Dan Kummer, director of auto insurance for the Property Casualty Insurers Association of America. For much of the duration of a lease (or a loan with no down payment, for that matter) you'll owe more on the car than it is actually worth. But if your car gets totaled in a wreck or stolen, regular car insurance only reimburses you for the car's actual value, not for what you owe. Gap insurance policies protect you by covering the difference.

Research Your Finance Options

Surprisingly, once you've made your decision to lease or to buy, your next step should be the same: Don't go to your dealer yet. While most dealerships offer both loan and lease programs, you're not required to use your dealer's financing for either one. Typically, you don't even lease the car from the dealer, but from the leasing company (on whose behalf the dealer negotiates) and you'll be in a better position to bargain if you've investigated and obtained financing offers elsewhere. Check with your local banks and any credit union to which you belong to find financing options: Many provide both. Leasing is not offered everywhere, but approximately 20 percent of the larger credit unions do make it available, so shop around. Be sure to investigate what fees and extra charges may apply to your loan or lease, as well as which of them you may be able to negotiate to have removed.

This research will pay off when you enter the showroom. "Manufacturers sometimes make more on the financing than they do on the cars," says Amelia Warren Tyagi, coauthor of All Your Worth: The Ultimate Lifetime Money Plan. A dealer may offer you what seems to be a great price, figuring that the financing will compensate for it, especially given that an individual dealer is usually not required to give you the lowest rate his finance company approves for you. That's why you need to negotiate the car price first. And don't even reveal whether you plan to lease or buy, let alone discuss the details of any financing, until you settle on a price.

Most people don't realize that the negotiated price of the car helps determine your monthly lease payment. While other costs and fees factor in, your payment is based upon the cost of the brand-new car minus what the leasing company projects the car will be worth when you return it -- so the lower the price you agree upon for the car, the lower your payments will be. If a dealer realizes you're planning to lease, he may tell you that the car's cost has to be the sticker price. This is not true. So getting a good deal on price is crucial no matter how you finance.

Even after you arrive at a mutually satisfactory price, you want to be sure that your car contract does not include a host of miscellaneous fees that will reinflate the cost of the vehicle. Quiz your dealer on what fees apply and remember that no charges are set in stone -- until you've signed the contract. "My advice is simple: Fight every fee," says Deanna Sclar, author of Buying a Car for Dummies.

Although you shouldn't be discussing financing at all before you've settled on a price, insiders particularly advise against revealing your ideal monthly payment. Almost any total price can be made to work with any monthly payment if the down payment is large enough and the lease or loan term is long enough. What counts is the car's selling price, so that should be your primary focus.

Tips to Close the Deal Well

Once you have your offer, including all taxes and fees, in writing, then you can tell the dealer whether you're interested in leasing or buying. This is also the time to ask about dealer financing. Be specific: Say something like, "I'm interested in a 36-month lease," or "I want a four-year loan to buy the car. What kind of rate can you give me?" Since you've investigated your own financing, you are in the driver's seat. If you like haggling, you can use your existing financing as leverage to get a better rate. Or you can simply use your own financing and close the deal.

Whether you choose to secure financing from the dealer (sometimes they can offer deals that are comparable to or better than those you'll get at a bank) or from another source, be sure to read your contract carefully and consider having a lawyer read it as well. Remember, the dealership isn't bound by what it promised you during negotiations but by what is actually written in the contract. If you're leasing the car, question any fees now, including the termination fee (what the company charges when you return the car), mileage limits, or anything else that you foresee could present a problem -- later will be too late. Additionally, some leasing agreements require that you come to the dealership for maintenance. If you don't like that idea, negotiate the point.

Whether you're buying or leasing, your finance contract and sales contract should be two separate agreements. It's wise to get your financing locked down in advance (approval usually takes a few days), or you can sign both at the same time, making the purchase agreement contingent (in writing) on getting the financing terms you want. In either case, experts say, leave the car on the lot until the deal is complete.

How to Pay Less at the Pump

By Evita Nancy Torre

Nine million Americans pay as much as 24 cents more per gallon for premium gas (which has a higher octane count and thus can produce more power) when regular would do just as well. Most cars do not need premium, with the exception of certain luxury and high-performance vehicles. Check your user's manual to see whether premium gas is suggested or required. If the higher-priced fuel is only suggested, "the lower-octane fuel won't hurt your car," says Justin McNaull, an AAA spokesman. Even if you hear the occasional soft ping, your car's performance should not suffer. If you hear loud knocking, however, consult your dealer or mechanic.

• Take advantage of club memberships. Some wholesale clubs, such as Sam's Club and Costco, offer discounted gas (typically around 5 cents less per gallon than at other gas stations) at the stores' adjoining gas stations -- but to members only.
• Look online. Visit a free gas-price Web site, like www.gasbuddy.com or www.gaspricewatch.com, to search by zip code or intersection for the cheapest tank. Gas Buddy Organization, for example, boasts nearly 450,000 volunteer gas price reporters around the country.

Get the Best Deal on a Used Car

By Evita Nancy Torre

Certified preowned cars are those previously leased by a dealership and then offered by it for sale. They typically cost about $1,000 more than comparable used cars, because, in theory, the dealership subjects them to a rigorous inspection and underwrites their quality with a warranty. Last year, approximately 1.6 million people were willing to pay the extra money to be assured of a better, safer used automobile.

Recent lawsuits brought by buyers of certified preowned cars suggest, however, that they may not always be worth the extra cost. First, there's no universal standard of quality these cars have to meet or agreement about what "certified preowned" really means. Some buyers allege that they've actually been sold rental cars, which are typically worth less than normal used cars. And the warranties themselves can vary drastically.

Until there's a legal definition of what standards a "certified preowned" vehicle must meet, experts recommend that you look for a dealership with a program that specifically refuses to sell cars with frame damage or a history of accidents. And avoid warranties issued by outside suppliers. These often include a high deductible in the fine print, meaning if you make a claim you'll have to pay money up front before the warranty kicks in. Look for warranties issued by the carmaker itself.

Originally published in Ladies' Home Journal magazine, October, 2005.