Unless you're in the position to pay cash for a new or pre-owned
vehicle, you'll need to establish a payment plan to obtain that vehicle.
Two options exist - taking out a loan or leasing.
When you take out a loan, all of the money used to pay it off applies
to your eventual ownership of the vehicle. The initial down payment
and principal on the loan cover the total cost of the purchase. Lease
payments, however, apply only to the use of the vehicle. The total sum
of payments covers the vehicle's depreciation over the time you drive
it and is usually less than the outright price of the vehicle.
When paid in full, a loan terminates and you assume ownership.
Your bank sends you the title that had been held while the loan
maintained an outstanding balance. When a lease period ends you
forfeit the vehicle to the lessor, unless the lessor offers to sell
the vehicle afterwards. During the entire lease period the lessor
maintains ownership and simply allows you to use the car. Ownership
is only transferred if you chose to buy the vehicle after the lease
In formulating a monthly payment structure, a lessor is primarily
concerned with the extent to which the vehicle will depreciate throughout
the lease and the cost of borrowing money to finance the car during
First, the adjusted capitalized cost is determined. This figure
represents the real purchase price after elements such as the down
payment, incentive discount and trade-in credit are deducted from
the capitalized (actual) cost, while any fees or charges (e.g. destination)
Second, the residual value, or estimated value of the vehicle
at the end of the lease, is determined and then subtracted from
the adjusted capitalized cost to yield a depreciation figure. The
residual value depends on the length of the agreement, expected
mileage and make/model of the vehicle.
Finally, a lessor assesses the money factor, a number that correlates
with the cost of borrowing money during the lease period.
While these terms may seem unfamiliar, the Federal Reserve Board
now requires dealers to publicize all leases' down payment amounts,
lengths, residual values and interest rates.
Most leases rely exclusively on the residual value in determining
the end of term purchase price. These closed-end deals require you to
pay the fixed residual amount regardless of the actual market price.
Open-end leases work differently in that the actual market value helps
determine the purchase price. As a customer you are responsible for
any difference between the residual and actual value when buying outright.
All new and many used vehicles arrive with a warranty covering unexpected
repairs. Be sure to understand the duration and covered components of
the warranty. A typical warranty might be written "48/50,000" meaning
that coverage lasts either 48 months from the initial purchase or until
the vehicle has 50,000 miles, whichever comes first.
Depending on what is being repaired, the length of a factory warranty
varies. Often a comprehensive "bumper-to-bumper" warranty covers everything
outside of schedule maintenance. This is generally the shortest warranty
period. A usually longer powertrain warranty covers engine and transmission
defects. Anti-corrosion protection often lasts even longer. Finally,
some manufacturers offer roadside assistance for a limited time.
Warranties are often transferable, meaning that a vehicle inside
its mileage and duration caps will maintain its factory warranty.
By performing required service at the proper intervals and responding
if something clearly goes wrong. Your owner's manual explicitly lists
service intervals, although cars are often equipped with "check engine"
dashboard lights that signal needed maintenance.
First, you can find a factory OEM part by either going through
a dealer or contacting the manufacturer directly. Factory parts
are built by the OEM manufacturer to the exact same specifications
as the existing parts. New OEM components are generally the most
expensive option but often yield the best fit, durability and overall
quality. If you own your vehicle and are thinking of reselling,
documenting repairs using factory parts can increase the resale
value of the vehicle.
Second, you can find a new aftermarket part from a variety of
parts dealers online and at shops around the country. Aftermarket
parts are often exact replicas of OEM parts but are built by companies
not associated with the primary auto manufacturer. While aftermarket
pieces are less expensive than their OEM counterparts, they also
may suffer in terms of quality, fit and finish. Aftermarket parts
are great to get a car back up to speed if the budget is an issue
and fit/quality do not matter. However, some aftermarket companies
produce pieces that are of exceptional quality.
Third, you can find a used factory (or maybe even a used aftermarket)
part at a salvage yard or from a private seller. Good used factory
parts are a great way to save money and get an OEM specified piece
at the same time. Obviously, used parts are subject to wear and
are highly variable in their quality and usability.
To determine the best method of replacing a part, check with you
dealer, owners of similar vehicles and on the Internet to determine
what option makes sense. You know the new OEM part will work, so read
online testimonials to see if aftermarket replacements are worth the
cost. You can also gain insight that's helpful in a used search, learning
the common defects/attributes of a part before buying it yourself.
Many suppliers offer both OEM and aftermarket parts for a broad range
of vehicles. Some specialty parts may not be produced in the aftermarket
if demand does not warrant investment. Tracking down these obscure pieces
may require consulting a parts specialist. Some dealers have caches
of unused factory parts, often called New Old Stock (NOS) or New Old
Replacement Stock (NORS). These command high prices especially when
out of production.
Trading in your current vehicle towards another can partially offset
the cost of the new vehicle. The trade-in's net value goes towards the
purchase or lease of a new car. Conditions of a trade-in vary depending
on who owns the vehicle.
If you own the vehicle, trading-in means that you're selling the
car to the dealer for some determined price. As a result, the price
of the new car goes down, only.
If you are leasing a vehicle and do not own it, trading-in means
that the seller of the new car agrees to pay the outstanding costs associated
with the lease. Depending on the financing of the new vehicle and the
outstanding balance on the old one, trading-in can either raise or lower
the new car's price.
When you trade-in you don't have to worry about selling the vehicle
yourself or any of the associated costs (advertising, showing the car,
etc). A dealer may offer a price you could not get yourself as an incentive
to purchase a new vehicle. If the trade-in has known problems that could
plague you later (when the buyer returns complaining), selling the car
to the dealer eliminates the bother. Trading-in a lease car may relieve
you of, in the long run, monthly costs you cannot afford. Sometimes
people trade in lease vehicles because of poor gas mileage or lack of
If you think you can get a better price selling privately, and it's
worth the time, money and effort, do not sell to the dealer. Some cars
are of special interest and dealers will not always recognize those
Some are kept by the dealer and resold as used cars. Many are sent
to auction and purchased by other dealers for resale. Dealers know that
auction prices often will not match the sum credited toward a new vehicle,
but they absorb the losses as sales incentives.
Check used car values in guides issued by organizations such as Edmunds.com
or the National Automobile Dealers Association (NADA). Often both trade-in
and private sale values are listed. Factors such as mileage, overall
condition, damage and known mechanical problems heavily influence the
The laws vary by state, but most require basic liability coverage.
States want to be sure that motorists have some financial backing in
the event of a collision or any insurance-related incident. Most states
require insurance to operate a vehicle in any circumstance, but there
are a few exceptions:
Tennessee and Wisconsin do not require liability but legally
expect drivers to prove adequate "financial responsibility" in the
event of a collision. (Source: TN, WI DMV websites)
New Hampshire initially requires no insurance but does temporarily
after a collision. (Source: NH DMV website)
Virginia is a rare exception, allowing a driver to pay a $500
Uninsured Motor Vehicle fee to legally operate without insurance
at his/her own risk. However, the fee expires with the registration
and must be renewed. Drivers in Virginia opting for insurance must
meet the state's minimum coverage. (Source: VA DMV website; http://www.dmv.virginia.gov/webdoc/citizen/vehicles/insurance.asp)
Drivers in these four states often still carry insurance as protection.
By purchasing uninsured/underinsured motorist coverage. UM/UIM pays
for medical bills if you and any occupants are hit by an uninsured motorist
or one without enough insurance. Many states require this coverage by
Uninsured/underinsured motorist property damage coverage pays
for damage to your vehicle if hit by a driver without any or enough
insurance. Some states offer this coverage in place of collision
Yes, if you have an insurance policy you're covered throughout the
United States. Moving to a different state temporarily may require changing
coverage, depending on the amount of time a state allows residency with
Moving for the long-term definitely requires switching insurance,
although the time to do so can be somewhat variable. For example,
a state may technically require changing after 90 days, but if you
have two full months left on your current policy it would seem silly
to switch prematurely. However, the "grey" period in between could
prove problematic in the event of an incident.
An SR-22 is a form that proves a driver has insurance or is financially
responsible. High-risk drivers are often required to carry these forms
for periods of 3 to 5 years, depending on their offenses.
Liability covers bodily injury (including death) and property damage
to others if you are determined responsible for an accident, even if
you are not driving. Owning the vehicle and lending it to someone else
constitutes responsibility. Liability coverage also pays for legal fees
if you are sued as a result of an accident.
Insurers will often represent liability coverage with three consecutive
numbers; for example, 50/100/25. The first number stands for maximum
amount payable for an individual bodily injury in an accident, in
this case $50,000. The second number represents the available coverage
for all injuries in an accident, or $100,000. Finally, the last
number denotes maximum property damage liability for one accident,
Amounts of required coverage vary among states. Along the spectrum
of minimum coverage, a low figure is 15/30/5 (California, New Jersey)
while a high set is 50/100/25 (Alaska, Maine).
Comprehensive coverage pays for damage to your vehicle that is not
caused by an accident with or without another vehicle. Natural events
- fire, wind and flood - are included, in addition to theft and vandalism.
Damaging encounters with animals are included as well. If a vehicle
is stolen, comprehensive will reimburse you for any related expenses
or losses. Some comp plans pay for the replacement of broken glass,
often known as full-glass coverage.