Archive for the ‘Leasing’ Category

How To Lower Your Car Payments

home-buyerHey Cool Car Fans,

Many times people will decide that they want to purchase a home, but their debt to income ratio is too high.  They may have a great job and the income and they have even saved for a down payment, but their car payments are preventing them from being able to purchase a home.

There are some creative ways to lower a person’s car payments that can really help with their debt to income ratio and allow them to qualify for a home loan.  I have a good friend and client, who is a mortgage banker and he will routinely call me throughout the year and ask me to assist one of his clients to qualify for a mortgage by lowering their car payments.  There are a number of ways that we can do this to make it happen for people and allow them to take advantage of a home mortgage situation.

2012qx56The first thing that we can do is refinance the person’s current vehicle and lease it back to them that can sometimes really lower their payments.  I recently had a client who was able to lower their payment on a 2012 Infiniti QX56 from over $800 a month down to $422 a month by leasing the vehicle, instead of continuing with her current payment structure.  Being able to lower her payments really helped her with cash flow based on her financial situation.

Many people have lifestyle changes and they don’t look at this as an option.  For example, if a person can lease a vehicle and have a lower payment than they have money available for qualifying for a home or funding an investment grade cash value life insurance policy.  This can be a great strategy that will allow someone to put money away that they can use for other funding options.

lifeinsurancepolicyAs a licensed life insurance agent in the State of Colorado I can show people how to leverage the benefits of dividend paying whole life insurance from a mutual life insurance company.  One of the tremendous benefits of these products is that a person can invest in a policy, have a death benefit and build cash value to borrow against in the future for opportunities like financing their own vehicles without credit and at really low interest rates.  There are huge benefits to this strategy that I won’t go into detail here, but it’s an example of how if you can lower your car payments you can have other financial opportunities available to you.

I’ve had a number of people who have refinanced their vehicles by either financing or leasing them to lower their payments, but another option is to trade out of the current vehicle and into another vehicle.  This is another strategy that many people don’t think about and they miss out on a way better financial opportunity.

400For example, many people are told by the television and radio “financial gurus” never to lease a vehicle, but what if you have an opportunity to buy a home at a great price?  Let’s hypothetically say that you have a $600 a month car payment that is holding you back from qualifying for a home, but you only need $200 more a month in cash flow and you would qualify for the purchase.  What if you could get out of it, lease something similar in a different brand and have a $400 a month payment for three years with miles that would work for you?  That’s $2,400 a year, which over three years is $7,200 in savings.  This is money you can use for other opportunities or save for the future.

Let’s assume that you are $4,000 upside down though to get out of your $600 a month payment?  That is still $3,200 in savings over three years with much better cash flow, when you subtract the $4,000 from the $7,200.  This is what many people don’t think about.  What if you are able to purchase a home for $10,000 less because of the market in your particular area and you can now do that because of your improved cash flow?   Suddenly, that $4,000 in negative equity on the vehicle that you rolled into a lease makes perfect financial sense because you immediately saved $10,000 on the home purchase.  Over three years, the home you purchased is probably going to appreciate in value as well.

“Typically in the U.S., property prices rise 3.5 percent per year, Humphries says, and since about the middle of 2013, they’ve gone up 6 to 8 percent a year.” – Source: USNews.com

“The median home value in the United States is $189,400. United States home values have gone up 5.5% over the past year and Zillow predicts they will rise 2.9% within the next year.” – Source: Zillow.com

This is just one example of how it can make sense to lower your payments using a lease, trading out of a vehicle and purchasing or leasing a different vehicle or even doing a refinance for better cash flow.  As I mentioned already, I also show people how to use this type of a strategy to put the additional savings into an investment grade cash value life insurance product that also goes on the asset side of a balance sheet.  This can allow a person to put money away over three to five years and begin building a stronger financial foundation for themselves.

The bottom line is that sometimes it can make more sense to finance or lease a vehicle and lower payments depending on a person’s unique financial situation.  Everyone’s situation is different and people have life changes, including divorce, health concerns, retirement, credit challenges or opportunities that they want to take advantage of, so I have found that there is rarely a one-size fits all solution.

It’s honestly never a cut and dry statement such as “you should never lease a vehicle” or “you should never refinance a vehicle” or “you should never buy whole life insurance” like so many of the “financial gurus” like to claim.  Sometimes it makes perfect sense.  I’ve seen many people really improve their financial situation by restructuring their automobiles and the way that they go about financing or leasing them.

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John Boyd

Auto Consultant – John Boyd: The Cool Car Guy

John is an auto consultant with his license at a car dealership in Denver, Colorado. He can help you save time and money on any make or model, new or used, lease or purchase – nationwide! Call or email John about your next vehicle! jboyd@coolcarguy.com or Twitter @coolcarguy

Can You Get Rid Of Negative Equity On Your Vehicle

Hey Cool Car Fans,

2015 Chrysler 300C Platinum

2015 Chrysler 300C Platinum

I am always amazed by some of the articles that I read from financial gurus, like one guy who recently wrote in an article on the topic of negative equity that “If you have negative equity in your vehicle, you shouldn’t be trying to buy a different vehicle.” Really?  That is really ridiculous because every used vehicle is different.  That is a bit like saying that if you are losing money on a stock in the stock market that is dropping in value, you should never sell it, but just wait until it comes back someday.

What if the vehicle you are upside down on is a piece of junk that you keep having to sink money into a financial black hole at the repair shop?  How is that a financially wise decision?  I see it happen to people more often than I care to because every vehicle is different.  Like the person I recently spoke with who purchased an old Isuzu Trooper for $2,000 on Craigslist and now they are into it for $8,000 after repair bills and it’s still not running well.  There is a shocker!  They asked me what to do and I told them to sell it and cut their losses.

Many of these “financial experts” advise their students to drive around a 1995 Honda Civic that they found on Craigslist for $500 to “save money”, while they are earning millions from their books, radio programs and television appearances.  I doubt that they are driving around a junk car like they want all of their listeners to drive around.  I digress, but here’s my two cents on negative equity.

First of all, there are ways to get rid of negative equity.  Especially if you know how to structure a lease properly and you can find the right new or slightly used vehicle that can carry the negative equity into the lease.  This way you can get a payment that won’t kill your budget, while getting a new or newer vehicle that is under warranty.

2015RamRebelRecently, I looked at a deal on an AWD Chrysler 300C that could bury as much as $9,000 in negative equity using a unique lease program that had to be done outside of the manufacturer.  I also saw a deal on a four door RAM 1500 truck that had a similar program that could bury around $6,000, or even more depending on qualifications, in negative equity using a third-party lease program.

That’s pretty significant and the benefit is that at the end of the lease a person can start over, while having a late model vehicle that isn’t going to be breaking the bank on their wallet or breaking down on the highway.  I have also done a number of leases on late model used vehicles to bury negative equity that goes into the lease structure, so that at the end of the lease term the person has eliminated their negative equity. Most of the time people will buy out the vehicle at the end of the lease since they are typically in an equity position instead of a negative equity position at the end of the lease.

Let me state clearly though that not everyone knows how to do this just because they work at a car dealership.  There are many horror stories about “leasing”, which is why people tend to shy away from them.  If you are not working with someone who knows what they are doing, you can get burned and end up still having your negative equity at the end of the lease.  And just because someone calls themselves an auto broker or a finance manager doesn’t mean that they have a clue about how to properly structure a lease for maximum benefit.  I know owners of dealerships who have told me that they have no clue about leasing and are as ignorant as the average person off the street.  In fact, you can have the same payment on the same vehicle with two different leasing companies and one has more money going toward interest, while the other is going more toward lowering the purchase value at the end.

This doesn’t mean that leases should be avoided though.  People lose money in the Stock Market all the time, but that doesn’t mean that there are not people earning money on the same stock that someone else lost money on.  It all depends on the knowledge and expertise of the person who is involved in the transaction.  Leasing is not the only option, but I have eliminated negative equity with financing the right vehicle as well.  I just think that leasing works much better most of the time because you are not dealing with the full amount of the vehicle like on a finance.

So, if you know someone with negative equity and they are frustrated about their situation be sure and let them know that there are potential solutions available to them to solve their problem.  Their only option is not necessarily to keep driving their vehicle until they have eliminated all of their negative equity.  It is dependent on the entire situation and the structure though, including the amount of negative equity, the condition of their current vehicle, their credit, job history, money or no money down, required monthly payment and what they are willing to drive to solve their problem.

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John Boyd

Auto Consultant – John Boyd: The Cool Car Guy

John is an auto consultant with his license at a car dealership in Denver, Colorado. He can help you save time and money on any make or model, new or used, lease or purchase – nationwide! Call or email John about your next vehicle! jboyd@coolcarguy.com or Twitter @coolcarguy

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