Is it Overall Cost or Payment That Drives you?

“We’ve gone from a credit-dependent economy to becoming almost prisoners of credit,” says David Robertson, executive director of the Assn. of Finance and Insurance Professionals.

As a kid, he remembers his father shopping for a vehicle by looking for one that was reasonably priced, writing a check for almost the full amount and then driving that car “until it completely broke down or caught fire.”

But we’ve seen a major shift in how many average income earners buy cars today, says Robertson, a former dealership finance and insurance manager.

They are not paying much mind to price. Instead, they are fixing on monthly payments.

“They say, ‘If I can get this baby – with all the latest features – I’m going to own it,’” says Robertson.



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IZZIE06 - 12/14/2006 3:02:47 PM

+1 Boost

Good article, sadly it's very true

1970toyotamarc - 12/14/2006 3:34:23 PM

-1 Boost

there's a reason why BMW sells 10,000 3 series a month. Just pick up the autos section of any newspaper and check out how little you have to pay to get into one.

Agent009 - 12/14/2006 3:48:52 PM

+3 Boost

That is the byproduct of outstanding residuals. A very strong point for them.

IZZIE06 - 12/14/2006 9:24:45 PM

+1 Boost

WHAT IS A 24MO RESIDUAL on a say 530? 15k per year

IZZIE06 - 12/14/2006 9:26:20 PM

+1 Boost

actually residual helps determine monthly payments, that coupled with money factor

no1listensanyway - 12/15/2006 12:38:34 AM

+2 Boost

Its truly sad, years ago I was a lot boy for a dealership in New York and they preyed on people with bad credit. They would get them approved at ridiculous interest rates. I remember one guy was paying 21% interest on a Chevy Astro van. (25% and above is illegal in NY) Another way they took advantage was convincing these people to put (cheap) 20 inch rims on their SUV at a price of $3500. (It was ok though because it only raised there 72 month used car loan another $10 a month) When the SUV came back on the repo truck they would put the original wheels back on and sell the rims on e bay. Thats only the half of it...

dumpsty - 12/15/2006 7:39:47 AM

+1 Boost

Depreciation Cost per Month: [Cap Cost - Residual] / Lease Term in Months

Monthly Finance Charge : [Cap Cost - Residual] x Money Factor

Depreciation Cost + Finance Charge = Monthly Payment

Where,
Cap Cost (selling price you negotiate with the dealer)
Interest Rate = Money Factor x 2400
Residual (wholesale value of a car at the end of its lease term, after it has depreciated)

Here's the link to the formula that does the calculations automatically: http://www.leaseguide.com/formula.html

dumpsty - 12/15/2006 7:43:21 AM

+1 Boost

Oop, typo in one formula.

Monthly Finance Charge : [Cap Cost + Residual] x Money Factor

That's "+" instead of "-".

XYZZ - 12/16/2006 3:15:31 AM

+1 Boost

most consumers are NOT money savvy.

the article and most of the posts above verify this.

people who LEASE rather than buy, tend to fall in this category too, with the sole big exception of leasing for a business you own.

money wise folks always try to move from a rental to a house they can OWN OUTRIGHT.

people who just lease, apparently don't mind RENTING all their lives.

IZZIE06 - 12/16/2006 1:34:10 PM

+1 Boost

why own a deprecating asset??