New car thoughts-leasing, paying cash, and extended warranty

Parent Cafe
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I am in the process of car shopping as my 13 year old SUV will need replacing in the near future. This is my first car purchase since my husband passed away last year, so making sure I cover all my options. He was the car enthusiast, so was always the input on the build, engine, gas mileage, etc… I was the researcher on price, safety, checking Consumer Report and other reviews.

When purchasing a new car, most of our views came from how my husband’s father would go about a car purchase. My FIL was as frugal as they come and could get the best deals on a car. I remember in the 80s when we purchased our first car without help, how proud he was of us as we got a great deal on the car! FIL never believed in leasing a car, something my, SIL & BIL, his daughter, always did. Always use an independent mechanic, unless warranty work, and don’t waste your money on an extended warranty.

My thought is to pay cash for the car, something I have never done. From my brief research, the dealers make more money if you finance. If one wants to pay cash, it is best to get the deal and finance the car, then pay it off within a month or two. I also read to make sure the terms allow an early payoff; which means really reading the paperwork! For those that have done this, does it work out?

One of the reasons I have even entertained leasing a car is to try a Hybrid. I haven’t really come to a conclusion as to if I want a Hybrid; leasing would give me the time to see how I like it, without locking myself into it long term. We have always joked that we keep our cars until the wheels fall off, or when the repairs get to be too often or expensive. My gut is to not lease as I am able to buy a car out right, so not sure I want monthly payments. Pros and cons to leasing?

What about extended warranties? Worth the cost? My independent mechanic of 30 years will hate me once again if I do this. For some reason he took it personally when I kept my car for a couple of years at the dealer as I always had a coupon, received good service, was able to make an appointment, so I was able to get in and out, and they had bagels on Friday, the day I would make my appointments! :rofl:

Anything else I might be missing and need to consider?

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We bought a new car in October. To get some of the “incentives” we had to finance their minimum amount which was $20,000. We made sure we could pay off early, and will be doing so within a month or so.

This car came with free maintenance through the 40,000 mile check up…so we did not purchase any extended warranty…actually, we only had an extended warranty on one car…a 1980 Honda Civic…there is a story to that…anyway…we haven’t purchased one since.

We have never leased…and did consider that if we had gone EV…simply because the technology is changing so quickly.

I am not sure what you need to see in terms of liking a hybrid. Really…the on’y difference is that you have electric and gas functions. It’s not like you need to worry about range or anything. You will have a gas gauge. If you really just want to try a hybrid, why not just rent one for a week. I’ll bet you can do this.

I recently rode in a Camry hybrid, and frankly if no one had told me it was a hybrid, I would never have know. Ditto for hybrid RAV. Really, they are just like their ICE cousins.

We get our cars serviced at the dealership, but we actually like the service folks at our dealership. Your independent mechanic should not be holding grudges like this, in my opinion. You go get service where you want to. I had just an oil change this week and had one of the best lattes I’ve ever had, and they include a complimentary wash of the car. And I had a coupon too. I will say, Volvo took very good care of us when my car started consuming oil at 63,000…dropped a new engine into the car at no cost to me. And when the same thing happened at 126,000 (not kidding) they would have dropped another engine into the then 11 year old car. I think this was because they could look at our service records first hand…quickly. No second party. In the end, they gave us $8500 for a car with a book value of $3500…if we bought another Volvo…so we did. Anyway…I’m digressing. There is some value in using the dealer.

My father was an interstate truck driver as his career…and he always got his cars serviced at the dealer…but then, he also traded them in at the same dealer every three years.

Re: paying back early…the finance folks should be able to clearly show you that this is possible. If it’s NOT, they should be able to tell you that too. Just be prepared for signing and initialing a LOT of places.

And we got the whole car sales contract, and finance info on a flash drive. No paper.

Enjoy this. I actually hate buying cars…but this last experience was OK.

But seriously…ask the dealer if you can rent a hybrid for a week or two. They should be able to do so…or know where you can. I’d do that before I would lease.

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We got zero percent financing, so we pay the minimum due each month. We had to make a bigger down payment but it was worth it.

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We leased a car only once and were not happy we did. But to try out a hybrid, I kind of understand. As the others said, though, try renting one first.

We have always paid cash but have not mentioned that when we are negotiating with the dealer. You can suggest you want to finance and then, once the price is set, decide to just write a check.

And Yes, we also drive our cars until the wheels fall off.

No extended warranty, ever.

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Our last vehicle was purchased in an hour, and that includes my drive to the bank to get a check and get it insured online. Our minivan gave up the ghost while in use (like every single one of our vehicles, drive them into the ground, get them towed away), and we had a vacation home to drive to the next day with extended family who were flying in. Fortunately my sister is a car research fanatic and suggested a Kia sportage (it’s my husband’s, he is not a car guy), we wanted used (it had about 700 miles), looked at 3, test drove 1, did the paperwork. We do not lease or finance (my family is very hard on cars except me).

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We have a plug in hybrid, Toyota Prius Prime. Sone hybrids and plug on and some are not, they just get much better mileage than gasoline only vehicles. Our neighbor has a lexus hybrid that is NOT a plug in.

We have never leased and always come to an agreement on the price before we talk about how the car will be paid for and always pay cash. 0% financing may be attractive to consider allowing the car to be financed.

I agree you should ask the dealer and check car rental places to see if you can rent the vehicle you’re considering buying to see what you think.

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I have a relative who is a youngish widow. She always leases her car. It gives her peace of mind to have a car that stays within warranty. She doesn’t want to worry about car repairs and dealing with the service department. She looks for a dealer that offers a loaner vehicle and even will drive out to her with a replacement vehicle. (I didn’t even know that was an option but apparently it is with a higher end car)

It’s easier for me because we have 2 cars, if one breaks, we drive the other. My husband deals with the repairs. I can pick him up. All things that my relative doesn’t have.

Trying to offer two sides of why someone would pick leasing.

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Unless you want a new car every few years leasing is not a good financial choice. Buying out the lease is a terrible deal and the dealers hate it. I went through this with my parents a few years back. If you finance make sure you know what fees are included - as well as any extra insurance you need - may eat up any savings (or make them small enough it’s not worth the hassle). My cars are always financed (for long periods) but if I had the cash I’d totally buy up front and be done with it.

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Some thoughts on car buying…

Dealer sales depts have goals for each month, quarter and year. They are typically more motivated to sell cars at the end of each period.

If a manufacturer is refreshing, or redesigning a model that drives down demand for the old version, especially if the new vehicle is getting good press. Also, the dealer needs to make room on his lot for the new vehicles. If you don’t mind (or prefer) the old version you can get a great deal.

Do you know anyone who works for an automaker? Auto companies have “friends and family” programs where the employee gives you a code and you take that to the dealer to get a worthwhile discount.

You can check dealers inventory online and not set foot at a dealer unless they have a vehicle you want. Dealers often have online sales reps where you can get quotes online without subjecting yourself to the in-store sleazy tactics. I think you can request quotes from multiple dealers for a car spec online (cars.com??).

You are right that dealers make money financing and they will pressure you early in the conversation to see 1. if you are financing, and 2. if you have a trade in. Avoid providing the information, and after deciding on the car you want request their “best out the door price” including all dealer ad-ons, fees (many unjustified), taxes and registration. Only then disclose whether you have a trade in or need financing.

If you are considering financing through a dealership, get rates and terms from other sources first, starting with your bank or credit union. The dealer might offer better terms than your bank, but you should know your options before talking to the finance guy at the dealer. Also, make sure your loan allows early payment. Some require you make so many months of payments. If there are no restrictions, you can finance through the dealer to get a better price, then pay off the loan after a couple months.

Warranty periods vary greatly between manufacturers. I think the best out there are Hyundai/Kia/Genesis with 100,000 mile/10 year powertrain. Most manufacturers are 36 or 48 month.

Dealers are paying carry costs on every car they have on the lot. They will be motivated to sell a car on which they have been paying interest for several months. Don’t be shy - ask the sales man about cars that have been languishing on their lot.

Ok, that’s enough for now.

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I would not lease simply because I drive too many miles and pretty much drive everything into the ground. For me, it just doesn’t make sense.

My dad, otoh, always leased because he loved getting the newest car every few years and never having to worry about repairs, especially as a one car family. I think you need to work out what a lease would cost you and decide if that premium is worth the benefit. For him, it was.

I have bought extended warranties and have needed them ( Ford - transmission needed to be replaced!) and have not (Toyota and Lexus). I think part of that decision is around the reliability of the brand. And yes, it locks you into the dealership although I haved loved the brands that offer loaners (Infiniti, Volvo, Lexus) It takes all the pressure off the turnaround time and also makes the convenience of the dealership less of an issue. It’s also a great way to test drive other vehicles in their line. I think in this one, it’s hard to judge value without knowing the future, but it may be easier to project how you’ll feel about paying for service and repairs for the next 7 years, or whatever.

It’s a bit of a stressful process but can also be fun. Enjoy!

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Regarding extended warranties, we bought several but that did NOT lock us into having to use dealer exclusively as long as we have regular maintenance in our vehicle by a certified mechanic. This is what I have heard several times.

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If you are considering leases, bear in mind that the more reliable the brand (Toyota/Lexus), the greater the residual at the end of the lease. Less reliable brands (Chrysler/Dodge) have terrible residuals, which drives up the monthly lease payment.

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This depends.

For example, Mazda right now has 0% for 36 months or a $1500 rebate.

If you have a $36K car at $1K a month for 36 months, you can invest at 4% in a municipal bond or a bit more in a CD and make $1440 a year - so over three years, almost triple the rebate.

Dealers make money a lot of ways - but they hope to have you as a customer for life - so they get service, etc.

Dealers pay invoice for a car and net the cost above to MSRP. But you see some sell at invoice so you wonder - how do they make money? There’s money they earn below the invoice - holdback, variable performance bonuses, etc. Then there are occasional sales bonus programs or contests - now with inventories building. Nissan just gave dealers an extra $2K on Rogues for example - as they have too many. Sometimes the contests are tied to an objective - sell x amount, get more money.

You mentioned finance - leave it out of a discussion. Yes, you can go with the captive lender - and for example, some brands are advertising 2.9% or 4.9% - and you can be assured the rate the dealer is paying is 1-2% below - so they are profiting. The manufacturers give the dealers a limit - so if they can mark it up 2 points, as an example, and you are paying 8%, the dealer might be paying 6%. If you have a finance manager, different than the salesperson doing your finance, that’s a telltale sign.

Other ways they make money - doing nonsense upgrades like ceramic coatings, doc fees (every dealer charges a nonsense paper fee - $500 to $1K usually, and then if you buy an extended warranty. The extended warranties are good - but you must find the MSRP and offer less. Dealers mark them up 3 and 400% - and they make crap tons on those. Not all, but many. If you’re in Florida, you’ll pay no more than MSRP by law.

In the end you want a deal you are comfortable with. They have bills to pay, employees who need to make a living - so you want the deal you are ok with.

Once you settle on a car, price at a few stores to ensure you’re not being taken advantage of at the place you’d like to buy from. Many non premium dealers are allowed by the manufacturer to post all their discounts on line. And today, you can request a price over the internet and get a few counter bids for comparison with little effort.

Good luck.

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I have never had a car loan and have never had a lease. My understanding is that both loans and leasing are indeed sources of profit for car dealerships (which I also understand have relatively thin margins).

One reason for leasing that I have heard is that you do not pay the full sales tax at once, but rather pay it over time. This can be a tax saving if you turn in your car for a new one every year. However, I do not turn in my car until it almost collapses under me, and it sounds like you do pretty much the same thing. Getting a new car every year sounds like an expensive way to require that we put in extra effort for no good reason.

That is my understanding also. Cars have gotten quite reliable. Extended warranties are another source of profit for dealerships.

We are on our second hybrid (both Prius’s). Basically it is a car, but gets better gas mileage. It drives like a car. At highway speed, or anything over 30 miles per hour, you most likely will not even know at any point whether the gasoline engine is on or off – it turns on and off so quietly and smoothly that you will not even notice it unless you either pay careful attention or have the display set to show engine status. Depending upon driving conditions the gasoline engine could switch on and off multiple times in a minute and you most likely will never notice. At very low speeds the car can be so quiet that you will know that the gasoline engine is off.

We have not had a plug in hybrid. To me this looks like something that would fit my driving habits very well, since I make a lot of very short trips (low single digit miles) and a small number of long trips (triple digit miles). I have heard that a significant number of plug in hybrid owners never plug it in, which means that they essentially just have a hybrid (which is still a good thing). However, if you park in a garage right next to an electric outlet, a plug in would seem to make a lot of sense. You do not get all that many miles from overnight recharging with a normal 120 outlet, but you will get enough miles to cover everything that most of us are going to drive most days.

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Leases and Taxes - will depend on the state how it is calculated - and that includes cost of registration.

ELWs - Extended Length Warranties - I’m a fan but it’s a risk/reward thing. Fixing a Nissan or Subaru will cost a lot less than fixing a Benz or BMW. In my company’s case, for a product I work with, our expense from warranty repairs (on the ELW) is more than the revenue we take in.

What it really comes down to - is the price fair. We have a product where one can extend 2 years for just over $1K and if a customer is offered that price (which is posted online), then it’s a slam dunk. At the same time, some dealers are charging $6K+ for that product - so that comes back to product.

You want to find out the MSRP and dealer net (if you can) of the product - and you certainly don’t want to pay more than MSRP. It’s a comfort thing - if you’ll have the car long term and you’re concerned with getting hit with an $8K or $15K charge, then it can be worth it for the piece of mind - but - you want to ensure you are being charged fairly.

As for taking a loan and paying it off quickly - it’s got a few issues:

  1. If you really don’t want a loan some will offer substitutional cash - so you can take the discount up front but if the loan is subvented enough (low enough), you can make money on their money - so you wouldn’t want to pay it off quickly.

  2. If you pay it off quickly, the dealership and finance manager take a financial hit. They need to make a living too.

If you find a car with a special/subvented APR, you don’t have to worry about being rolled on the rate - the OEM is setting it with guardrails so they can only mark you up so much.

In the end, buying a car is about comfort.

With the internet today, a smart shopper will check several stores - just to ensure they’re in a good position.

There are also services like Consumer Reports that can give you guidance for money - or if you’re a Costco member, they are aligned with dealers offering special pricing - so that’d be a good place to start once you settle on a vehicle.

Good luck.

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Like I said, we recently bought a new car and did finance some. The finance manager at the dealership said he knew we would be paying the loan off quickly and that was fine. We only did it to get some of the extra dealer incentives which they flat out would not give us without financing their minimum.

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I understand and it’s anyone’s right - I can’t think of any captive finance loan with a pre payment penalty - but there’s typically a set time -in our case, 90 days, they’d (the store and thus finance manager) be charged back if paid off. A good finance manager is making $200K+ so they’re not going to be worried about every little thing. They don’t just make money on rates but on upsell items like tire and wheel protection, extended warranties, pre paid maintenances and more.

That said, a customer is able to do what they want.

Because OP is able to or wants to pay cash, a loan would only be an option if they are able to make money on the bank’s money - which in that case, they’d want to hold the loan for longer than the loan will be.

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Well…they made nothing additional from us!

We usually finance through our credit union, but this time, we knew we would be paying it off quickly so it really didn’t matter to us. We would have paid cash…except we would have lost a lot in incentives to buy this car.

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After we finalize the deal, I always ask what the maximum amount they will let me put on my CCards and put the car on my credit card (paying off before I would be charged an interest, finance fee or penalty), to get cash back.

Once when we were a bit low on cash, I opened a CCard that offered O% for 9 months—I put the max on that card and paid the minimums and paid it off in full just before I would have to pay any interest, fees, etc.

We twice bought cars from friends that had just ended their leases and had low mileage and were cars we were interested in. It worked well for us and we got great prices.

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That’s you - but they sell many things to many people.

And I was simply explaining to OP as they are concerned with finance managers.

Everyone can say no - but everyone doesn’t say no - and that’s why the average dealership manager, per Automotive News, made North of $200K last year.

If everyone was you, they wouldn’t stay in their jobs. There’s nothing wrong with what you did - but it’s not pertinent to OP and their concerns.

"U.S. auto retail employees expected to earn more than $200,000 in wages, commissions and bonuses on average in 2023, according to the Automotive News Dealership Salary Survey, nearly three times higher than what the average American made in 2022. But that big money came with a workweek in excess of 50 hours, the study found.

Auto retail professionals’ average pay was expected to reach $200,200 in 2023, down 1.8 percent from $203,800 in 2022 but still $10,000 more than the $190,200 they reported earning in 2021. Income is rounded to the nearest hundred dollars, and some figures involve results weighted for consistent demographic representation.

“I consider leaving all the time,” a rural New York finance and insurance professional at a Nissan store said in the survey. “Problem is, it pays.” He reported expecting to make between $225,000 and $249,999 in 2023."