Car Buyer FAQs for Vernon Nissan in British Columbia
Are monthly payments necessary?
Monthly payments are great for a car buyer who can’t afford to pay in cash for a new or pre-owned vehicle. If you find yourself in this situation, we can help you establish a payment strategy to purchase your new vehicle with either a loan or lease.
What’s the difference between a loan and a lease?
A loan is a borrowed amount of money covering the total cost of the vehicle including tax and license.
Lease payments are applied during your use of the vehicle. The total sum of payments covers the vehicle’s depreciation over the time you drive your new car. This is typically less than the overall price you pay when you finance a vehicle.
What is transfer of ownership and when does this happen?
Full ownership is transferred to you, once your vehicle is paid in full. Your lender will send you the title that had been held during the finance contract.
When a lease period ends, you must turn in the vehicle to the lender, unless the lender offers to sell the vehicle afterwards. It’s important to remember that during the entire lease period the lender maintains ownership and allows you to use the car. A lease resembles a long-term vehicle rental. Ownership can be transferred only if you choose to purchase the vehicle after the lease ends.
How much should you use for a down payment?
Your down payment amount may range between 10 to 20 percent of the vehicle’s total cost. The larger the down payment, the less your monthly payment will be, and vice versa.
Can extra fees and charges be financed?
Yes. Registration, taxes, extended service plans, and other supplemental charges may be included in your financing arrangement.
Which option makes the most sense?
It really depends on your specific situation. If you like the idea of driving a more expensive vehicle for a smaller monthly payment then leasing is a great option. If you hope to eventually own your vehicle then a loan arrangement is the way to go.
What determines your finance loan rate?
The finance loan rate depends on your individual credit history, the amount borrowed, the length of the loan, and the make/model of the vehicle you wish to finance. Putting down more money initially lowers the amount borrowed from the lender, which reduces your monthly payments; it may also reduce your finance loan rate.
What are finance loan time frames?
In the past a typical loan period has been five years with an annual percentage rate around 8 percent. In today’s economic environment loan terms have ranged from 3 years to 7 years. Loan percentage rates average up to 12 percent. These numbers will vary based on your credit history.
Are loans available for pre-owned vehicles?
Yes, although they tend to function somewhat differently from new car loans. The down payment and interest rate can be higher based on your credit history, the make/model of the vehicle you are purchasing, and the length of the loan.
What are the advantages of a loan?
Loans are sensible for those who like to customize their vehicle, want to keep their vehicle for long periods of time, or plan to re-sell their vehicle to help recover the cost of ownership.
How are monthly lease rates determined?
A lease rate is determined by how fast the vehicle will depreciate over the lease term, and how that level compares against the cost of financing the vehicle during the same time period.
Three key elements:
- First, the adjusted capitalized cost is determined. This is the actual purchase price after the down payment, additional fees, incentive discounts, and trade-in value are deducted or added.
- Second, the residual value must be determined by estimating the vehicle value by the end of your lease. Once this is determined it is then deducted from the actual cost to yield a depreciation figure. That figure or residual value depends on the length of your lease arrangement, estimated lease end mileage, and make/model of your vehicle.
- Finally, a lender determines the money factor: a number that correlates with the cost of borrowing money towards your vehicle during the lease period.
How is the purchase price determined at lease end?
The residual value determined at the beginning of the lease determines the lease end purchase price. To purchase a vehicle at the end of the lease requires you to pay the fixed residual value plus any applicable taxes or fees.
What are the restrictions of driving a leased vehicle?
Lenders want their vehicles returned in saleable low-mileage conditions, which are established at the beginning of the lease. A rule of thumb on figuring average annual mileage under ordinary driving conditions is between 20,000 and 24,000 kilometers.
Beyond the established mileage limit, fees may accrue on a per-kilometer basis, usually in the range of $0.10 to $0.15 per kilometer.
To break it down, if most of your driving is local then leasing makes sense. However, if you drive 700 or more kilometers a week, then look into a financing loan arrangement.
What are the advantages of a lease?
If you prefer driving a new vehicle and want to avoid large repair bills, you might prefer a lease.
**Please note this is for general informational purposes only.