Understanding Financing
Vehicle Financing: Frequently Asked Questions
Q: What is the Interest Rate?
A: Banks, finance companies and credit unions base finance terms - such as interest rates and the length of the contracts - on evaluations of each individual’s financial situation. Factors such as credit score (published by multiple credit bureaus), time on job, monthly income, current debt and amount of down payment are all considered in these evaluations. Additionally, the vehicle being purchased has an effect on the interest rate – generally financing for new vehicles is available at lower interest rates than financing on pre-owned vehicles.
At Sonora Nissan, we’ll submit information regarding your current financial situation to multiple lending institutions. These institutions understand that they are competing with one another to earn business, and this motivates them to provide us with the best rates possible. However, since approvals and terms are dictated by the financial institutions, the dealership cannot commit to specific rates and terms until after we’ve received confirmation from those institutions.
Additionally, there are often special finance terms or rates available directly from the manufacturer and its financing subsidiary, Nissan Motor Acceptance Corporation. These “consumer incentives” may be presented as a choice between cash back or a reduced interest rate on a loan, or they may include special leasing offers driven by monthly payment. In the case of manufacturer offers, credit standards apply, and the offers may not be available to all individuals.
Q: What exactly influences the Annual Percentage Rate (APR)?
A: Your credit history, employment history, income, and current debt situation, as well as current market rates, the loan-to-value ratio on the vehicle, and special financing offers are all factors influencing APR.
Q: Can I use my trade-in as a down payment?
A: It’s common for individuals to use trade-in vehicles for down payments on loans or leases. In this case, our finance consultants and pre-owned vehicle managers will determine the current market value of the trade-in vehicle, and subtract any amount owed on the vehicle. This will determine the current equity. This equity may then be used for a down payment.
Q: How is current market value determined on my trade-in?
A: Market value on a vehicle is determined using a number of analytics. First, an independent evaluation system such as Kelley Blue Book will be used as a basis. Factors such as the condition of the vehicle and mileage will also be considered. Last, the number of like vehicles in a market and the current selling price of those vehicles will help us to establish desirability and true market value. Our management professionals will provide you with comprehensive information regarding the evaluation of your trade-in, to ensure full understanding of the process.
Q: Can I use a co-signer?
A: If you have deficiencies in your credit history, you may want to consider having someone sign the finance contract with you. A co-signer helps you to stabilize your credit and assumes equal responsibility for the amount due. This arrangement can be helpful if you have little or no credit and would like to establish some, or if you have blemishes on your credit history and would like to begin repairing your credit record.
Q: What about bankruptcy, charge-offs or delinquent accounts?
A: If your credit history is blemished because of too much spending or poor bill-paying habits, we can help you to create a plan for repairing it. With time, you can improve your credit profile, because credit scores (provided by national credit bureaus) change with each new piece of information submitted about you. Additionally, the scoring system used by the bureaus gives extra weight to more recent activity. When you make timely payments on an auto loan or credit card, these positive steps make quick improvements in your credit score.
There are finance companies that provide loans to individuals with bankruptcies, charge-offs or delinquent loans. In these situations, it is imperative that the correct vehicle is chosen (one with sufficient equity to satisfy bank requirements), and a down payment may also be required. The finance professionals at Sonora Nissan will work directly with you to determine the amount you can borrow and the type of vehicle you can purchase. If your credit history doesn’t support the vehicle of your dreams, a viable option may be to purchase a different vehicle now, and trade it in for your dream car once a positive repayment history has been established.
MORE QUESTIONS?
If you have specific questions regarding your credit history or ability to purchase, our finance consultants are standing by to help. Simply call us at 877-737-0333 or complete the quick credit application provided in this site. We’ll work with you to help you choose the financing strategy that’s best for you.
TO BUY OR LEASE?
When deciding between buying and leasing your next vehicle, the following questions will help you to make the right decision.
1. Will you replace the vehicle before your loan is paid in full? Auto loans on new vehicles are generally for terms of 48 or 60 months. Some may even run longer. Ask yourself if you’ll still be driving this vehicle after all of the payments are made. While many individuals believe that borrowing is better than leasing because they “own” their vehicles, remember that you will only own the car AFTER all of the payments are made. If you’ll grow tired of the vehicle before then and trade it in for a new vehicle – one on which you’ll also be making payments – leasing may be a viable option for you.
2. Do you need a low down payment in order to preserve your cash? With a lease, you typically pay only your first month’s payment, a refundable security deposit, and “up front” fees such as registration. Additionally, sales tax on a lease is paid monthly, rather than in a lump sum at purchase. On a purchase contract (a loan) it’s common to have a cash down payment, which may easily be 15 – 20% of the vehicle purchase price. This down payment will build equity in the vehicle. However, if your current cash needs are more pressing, leasing may make sense for you.
3. Do you worry about your vehicle’s resale value? If you worry about your vehicle’s resale value, leasing can provide some security. When you lease, the resale value is “locked in” at the time of the initial transaction. The lease company calls this a “residual value.” At the end of your lease, you won’t have to worry about selling your vehicle, or trading it in for an undetermined value; you simply return the vehicle to the leasing company. Many customers consider this an ideal situation because there is no depreciation risk. They simply turn the car in and walk away with a new lease and the keys to a new vehicle.
4. Would you prefer lower monthly payments? Lower payments are the number one reason consumers choose to lease. Because, with a lease, you pay only for the portion of the vehicle you use (the purchase price less the residual value), your monthly payments may be much lower than if you finance the purchase price of the entire vehicle over the same period of time. Even in a low interest rate environment, it’s wise not to jump at the lowest rate. If you’re a buyer who always has a car payment, the total amount of your payments over the term – rather than simply the rate – should be considered when choosing a financing strategy.
5. How often do you want a new vehicle? Leasing saves you the hassle of selling your vehicles, and allows you to move from vehicles to vehicle with low down payments and relatively steady low monthly outlays. This is attractive for individuals who want a new vehicles every three years or so. You would not want to lease if you want a new vehicle every year, or if you wait seven or eight years to replace or resell it.
6. How much do you drive? Typical lease agreements allow between 12,000 and 15,000 miles per year. If you drive fewer than 12,000 miles per year, then you may be paying for vehicle depreciation that you’re not causing. If you drive substantially more, you should consider purchasing these miles up front, where they come at a reduced charge. If you wait until vehicle turn-in to pay for extra miles, the cost is generally 15 or 20 cents per mile. Even still, buying miles in a lease can be much less expensive than suffering the consequences of owning a vehicle with high miles, as appraisal books (such as Kelley Blue Book) generally charge 30 to 40 cents per mile.
7. Do you worry about accidents or damage to the vehicle? The resale value set at the time of a lease contract is subject to the vehicle being returned in good condition. You may have to pay for damage considered “beyond normal wear and tear” at the time of turn-in. Of course, you would also expect that damage to a vehicle would be deducted from its market value if you traded it or sold it at the end of a loan. If you routinely carry lawn equipment, tools, carpools of children or dogs, you may cause damage to the vehicle’s interior. And if your current vehicle is full of dents or body damage, leasing may not be the best option for you.
As with traditional financing, if your vehicle is “totaled’” in a collision or if it is stolen, your insurance will only reimburse you for the vehicle’s market value, which might not cover what you owe on your loan or lease. You can buy extra “gap coverage” to protect against this, and some leases include in automatically.
8. Would you like to limit your liability? With leasing, you are automatically limiting your liability in the case of a serious accident. When you purchase your vehicle, your insurance will typically only cover you up to a limit of $300,000. In a lease, because you don’t own the vehicle (the leasing company does), the leasing company is then liable for any claims in excess of $300,000.
Sonora Nissan’s finance consultants are trained and knowledgeable, and will provide you with explanations and details regarding all aspects of purchases, loans, and leases. We’ll work directly with you to determine the financing strategy that best suits your individual situation and needs. If you have questions, please feel free to contact us at 877-737-0333.