Tag Archives: finance
So you’ve got your eye on a shiny new Putt Putt Intimidator XE. It’s got all the features that you want; navigation, shiatsu massage seats, power-folding running boards, a bazillion horsepower. But there’s one problem; it cost an arm, a leg, a kidney, and you’ll have to sell one of your children just to afford the insurance.
Then one night, you see a TV ad proclaiming the new Putt Putt Intimidator to be just $299 per month, “for well qualified customers”. But how? The thing starts at $30k, which would put your payments on the north side of $700 per month. Oh crap, that must be a lease! But is that really such a bad thing?
Car Lease Explained
Leasing a car is just like renting one at the airport. You pay to use it for a set amount of time, then you return it, and fly back to Cleveland. Sure the details are slightly different, but that’s the gist of a car lease. Those details however, could make a lease look pretty good.
1. You don’t actually own the car – While this may seem disconcerting to some, it can actually save you money in the long run. During the lease, you’re not liable for repairs, and in some cases, maintenance is included too. Other common leasing terms include;
- Yearly mileage restrictions – The leasing company has to sell the car once your lease is over, and a bagillion miles would make your Putt Putt Intimidator virtually worthless.
- No modifications allowed – No 40-inch wheels. No bumble bee exhaust. No loud stereo equipment, or anything else that might void the car’s warranty.
Good news – At the end of the lease, you can turn in your Intimidator for the latest model, or you can buy the thing outright.
2. You’re not financing the price of the vehicle, you’re financing the depreciation – The reason that your payments are so low is because you’re financing a smaller number. For example; If your $30,000 Putt Putt Intimidator XE is expected to be worth $19,500 at the end of your 24 month lease, your payments will be based on the $10,500 in depreciation, plus interest and leasing fees.
Buying the Vehicle
If you actually purchase the Putt Putt Intimidator, you’re financing the entire $30k plus interest and finance charges. You’ll be free to install all of the chromed out chachka, and flame-throwing exhaust kits that you want. And you can drive as many miles as you want too. However, you’ll be liable for any out-of-warranty repairs. Plus, regular maintenance will be on your dime too.
Once you’ve paid the vehicle off, it’s yours to keep. By contrast, when your lease expires, you have to turn the vehicle in and get a new model. Or, you can buy the vehicle from the leasing company. In which case, your payments will continue.
If you’re the type of person that likes to drive a new vehicle every few years. And you value convenience over ownership, then leasing a car would make the most sense for you. However, if you’re the type of person that likes to modify your car, then drive it till it dies. Purchasing a vehicle would be your best bet.
According to the IRS, if you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. And commuting to your regular workplace is not considered business travel.
What car expenses can you deduct?
The IRS gives you two options to deduct the business use of your car:
- Deduct car expenses using the standard mileage rate. The standard business mileage rate in 2011 changed mid-year. The business mileage rate from January 1 – June 30, 2011 is 51 cents per mile. The business mileage rate from July 1 – December 30, 2011 is 55.5 cents per mile. This changes from year to year (and sometimes mid-year like 2011 and 2008) so be sure to check the IRS mileage rates. On top of the standard mileage rate, you can deduct tolls and parking.
- Deduct car expenses using actual expenses. Actual vehicle expenses include lease payments, gas, oil, depreciation, license and registration fees, insurance, repairs, tolls, and parking.
Lease payments can serve as one of your biggest tax deductions. In my opinion, if you can deduct business use lease payments, that is the only time that leasing makes good financial sense. Here’s more to help you decide whether to buy or lease a car.
And in order to qualify for either option you must also keep detailed records of your business use of the car in a mileage log showing the date, business purposes, and number of miles driven. Keep in mind the second option is considerably more difficult to document. And just because it is more challenging does not necessarily mean you’ll end up with a larger deduction. Before deciding, try to estimate your annual savings under both options or check with a tax professional.
For more details on deducting car expenses refer to the IRS website.
So you’ve learned how to buy a car at the best possible price and think that guarantees you a good deal. Well think again! Did you know that a majority of a car dealer’s profit comes from the Finance Office (or F&I Department)?
Dealerships want you to think the hard part is over and that it’s time to let your guard down. But as you’re getting ready to sign for your new car, the Finance Manager will smoothly convince you that you need expensive add-ons and extras.
The image below shows how much the Finance Department really makes off everything they sell you. Note: these high numbers aren’t even the total price you pay, they only represent dealer profit!
Average Car Dealer Profit for Add-on’s & Extras
Breakdown of Add-ons & Extras in the F&I Dept.
Item Cost to Dealer Retail Price Dealer Profit Suggested Action
Fabric protection (scotch guarding) $5 $300 $295 Not necessary. If you want it, buy Scotch Gard for 9 bucks and apply yourself.
Paint protection $10 $325 $315 Not necessary. If you want it, buy sealant or wax for 15 bucks and apply it yourself.
Undercoating $200 $700 $500 Don't get it, most new cars come with warranties against rust and corrosion.
Rustproofing $50 $800 $750 Don't get it, most new cars come with warranties against rust and corrosion.
Pin striping $30 $300 $270 Not necessary. If you want it, look for an independent shop to do it after you buy.
Car alarm $300 $800 $500 Consider this, but it will be marked up significantly at the dealership. Go to an independent dealer and save money.
VIN etching $75 $200 $125 Not necessary. If you want it, buy a window etching kit and do it yourself for 20 bucks.
Lojack $325 $800 $475 Consider this, but get prices from an independent installer first.
Extended warranty $800 $1,800 $1,000 Not necessary, but can come in handy. Don't buy at the dealership without shopping around first. Read how to evaluate an extended warranty.
Gap insurance $200 $500 $300 Not necessary, but get competitive quotes outside the dealership if you are going to buy it. Read more about gap insurance.
Financing $0 n/a a lot! Dealers typically add 2-2.5% in APR to loans they provide. Find your own financing before heading to dealer. Ask if they can beat it.