Mind over money
Once you've narrowed down your vehicle list to just a few models, you'll have some financial decisions to make. Do you want to lease or buy? Leasing may be a nice fit if you prefer to get into a brand-new vehicle every couple of years, or don't want to cough up a large down payment (or any down payment). It may also be a good alternative if you don't plan to drive many miles each year. All leases have mileage limitations and require that any miles exceeding the limit be purchased by the lessee on a per-mile basis. So if you normally drive 20K miles a year and a lease only allows 15K, those extra 5K miles may become very costly. Some shoppers lease instead of buy because they can write off most or all of the payment for business purposes. When you lease, the burden of the vehicle's residual value is on the leasing company, but remember that most of the financial benefit goes to the dealer. When you buy, you'll own the vehicle outright.
Once you've determined which of these financing options is right for you, make sure you've got the credit to back the deal. Order a credit report in order to check your FICO score. Developed by Fair Isaac & Co., this score is a method of determining the likelihood that credit users will pay their bills--the higher the score, the better your credit rating. Next, run the numbers: What's your budget, what you can afford as a monthly payment, what your is trade-in worth? Don't plan to walk into the dealership and pay sticker price. Research actual invoice prices, and then learn the markup difference between what the dealer wants and what is fair. Now you're ready to sit down at the salesperson's desk.
Remember to keep each phase of the buying process a separate step, making it easier for you to understand and control the negotiations. Do not disclose that you are trading in your current ride until you finish negotiating the price for the new vehicle. This limits the dealer's ability to shift profit in his F&I (finance and interest) shell game from one aspect (new car) to another (trade-in).
The final step is financing. Only after you settle on a price for your new car and one for your trade-in, should divulge your preference to buy or lease and consider the dealer's finance offerings. It always pays to explore alternative financing through your bank, credit union, or local lender, but dealers often can provide compelling finance packages, especially when augmented by a manufacturer incentive.
Essential homework includes running through these financial scenarios before committing to purchase a vehicle, both to target your shopping and prepare for finance arrangements. While you should have alternative financing available, in this incentive-rich market, it's worth considering the dealership's offerings. Conventional wisdom cautions that the dealer will be acting as middle-man in the financing and collecting profit for that service, even when using a captive automaker lending agency. However, there are great deals to be had. Consider all your options, and ultimately choose what is right for you.