Question

Finance CHAPTER 8 – BUYING A VEHICLE

1. Before I go into the showroom to negotiate the purchase of a 2018 Honda Accord what information should I have and how do I go about getting it?
2. Name at least three reasons to lease a vehicle rather than buying one
3. Name at least three reasons to buy a vehicle rather than leasing one
4. What is meant by “gap insurance coverage” for your vehicle?

Answer 1

A. Before going into the showroom to negotiate the purchase of a vehicle, you should now complete details about that vehicle and compare with similar models in terms of price, quality and features.

B. Three Reasons to lease a vehicle rather than buy:

1. Lower monthly payments. The cost to lease a vehicle is typically much lower than to buy one. Little or no down payment is required, and you don’t have to pay any upfront sales tax. However, when you return a leased vehicle, you may have extra charges for racking up mileage that exceeds the allowable limit, terminating a lease early, or having any unrepaired damage.
2. Never being “upside-down.” When you lease a vehicle you rent it for a fixed term, which is typically one to 4 years. The amount you pay each month is tied to the amount of depreciation that’s expected during the lease term. (Different makes and models of vehicles depreciate at different rates.) You only pay for the depreciation of the vehicle that occurs during your lease term and you can never be “upside-down,” which is a common situation where vehicle owners owe more than their car is worth.
3. Fewer repair expenses. If you are covered by a manufacturer warranty during your lease term, you never have to worry about getting hit with a large, unexpected repair bill. However, you are still responsible for regular upkeep, maintenance, and the minimum amount of auto insurance required by the state where you live.

C. Three Reasons to buy a vehicle rather than lease:

1. Paying less over the long term. Monthly lease payments are generally less expensive than monthly vehicle loan payments. However, with each loan payment, you can build up equity for the future when you decide to sell it or trade it in. Buying a vehicle and driving it for several years after you pay it off can be the cheapest way to own a vehicle. The longer you drive it, the less it costs.
2. Have the option to sell it. As a vehicle owner, you have the flexibility to trade it or sell it (and pay off any existing loan balance) at any time. You’re never locked into a fixed ownership period like with a vehicle lease.
3. No mileage limit. When you need to drive a vehicle as many miles as you want, it’s much better to own it. Leases put caps on the number of miles you can drive and charge a hefty fee when you exceed the limit.

D. Gap Insurance Coverage:

Gap insurance is an optional insurance coverage for newer vehicles that can be added to your collision insurance policy. It may pay the difference between the balance of a lease or loan due on a vehicle and what your insurance company pays if the vehicle is considered a covered total loss.