Hollywood, CA 90028
Finance FAQ
When looking to purchase a vehicle, determining a finance plan that works for you may appear to be somewhat of an obstacle. At Toyota of Hollywood, we offer extensive amounts of information and great options for easy and relaxed payment plans. With the endless options and flexibility available to you at Toyota of Hollywood, paying for a new or pre-owned vehicle is never a hassle.
1. Are there any alternative options to making monthly payments?
If you are prepared to pay in cash for a new or pre-owned vehicle, the prospect of making monthly payments is obliterated. Otherwise, you will need to establish a payment plan to obtain the vehicle of interest. There are two options available to do so—taking out a loan or leasing the vehicle.
2. Loan Payments vs. Lease Payments: What’s the difference?
When you opt to take out a loan, every dollar used to pay off that loan applies toward your eventual full ownership of the vehicle. The initial down payment and principal on the loan are what covers the total cost of the purchase and ensures your payment plan is well on its way.
While loan payments apply towards your eventual ownership in full of the vehicle, lease payments apply solely towards your conditional use of the vehicle. The totality of all payments made on a leased vehicle covers the vehicle’s decreasing value over the time period you drive it. Still, the total sum of payments is usually lesser than the outright price of the vehicle.
3. Which option for financing makes the most sense?
If you are trying to consider which route to take in terms of financing new or pre-owned vehicle, you must ask yourself how you plan to use the vehicle. If you are looking to drive a more expensive vehicle, with a smaller monthly payment, leasing is a great option. If you are doing smaller amounts of driving in terms of mileage, or generally staying local, leasing is also a good option for you. If owning the car is important to you and you wish to make payments toward this prospect, financing with a loan is the best option for you.
4. What happens when my loan or lease is terminated?
Loans and leases do vary considerably in terms of what happens after they finish. When a loan is paid in full, the loan conditions cease to exist, and the driver assumes full ownership of the vehicle. Your bank will send you the title that had been held during the payment of outstanding balance, and the vehicle once loaned to you is now rightfully yours.
On the other hand, when a lease period ends, the leased vehicle is forfeited and forced back to the leaser, unless it is offered for sale afterwards. The leaser reserves ownership of the vehicle throughout the lease period and simply allows you to rent the car for a specified period of time. Ownership is transferred only if you purchase the vehicle after the leasing period has ended.
5. Why take out a loan?
For those who want to own their car, taking out a loan is a very smart way to finance your dreams. If you are looking to customize your vehicle or you plan on keeping it for an extended period of time with the option for resale if the need comes, loans are the optimal choice. Loans can also pose as safer bets for those who quickly wear out their vehicles, as leasers almost always deliver additional “excessive wear” charges if the car is returned in condition slightly more worn that the limitations specified in the contract.
6. What determines the cost of a loan rate?
The cost of your loan payments is determined by a combination of factors. The total amount borrowed, length and duration of the loan, interest rate, and credit history are just some of the factors that come into play. Paying more money in the initial stages will lower the principal of the loan, and subsequently reduce the individual payments to be made. You can opt to pay off the principal in its entirety at any point during the loan period, and at this point the vehicle ownership is transferred to you.
7. What should I keep in mind when arranging to take out a loan?
In most cases, the down payment for a vehicle on loan will range between 10 to 20 percent of the total cost of the vehicle. However, some purchases do not require a down payment. Usually, a loan period is five years and includes an annual percentage rate of approximately 8 percent. Depending on the manufacturer, this percentage rate may fluctuate, but it is important that you understand any and all conditions or clauses associated with the percentage rate.
8. Are loans available for the purchase of used vehicles?
While loans are indeed available for used vehicles, they function a bit differently than new car loans. A down payment of 20 percent or more is usually required, and the interest rate of loans for used cars is generally a bit higher. Banks are, understandably, more diffident in loaning money for used car purchases, as the risk of owning a used car should the borrower not complete payments is not as appealing as the prospect of owning a new car.
9. Why take out a lease?
There are many advantages to driving a leased vehicle. You will not have to pay out of pocket for warranty-covered repairs, never have to worry about re-selling the vehicle at the end, and you can always looks and feel great while driving a late-model vehicle. When leasing a vehicle, you are able to drive a more expensive vehicle at a small monthly rate that is non-obtrusive to your lifestyle.
10. What determines the cost of monthly lease rates?
The primary factor in determining the rate of monthly lease payments is the extent to which the vehicle is estimated to depreciate over the lease period. The cost of money borrowed to finance the vehicle during that period is also a factor equally weighted in determining lease rates.
11. What are the three key elements to keep in mind when arranging for a lease?
First and foremost, the adjusted capitalized cost, or adjusted actual cost, is determined and put to use. This will expose the numbers for the real purchase price after the down payment, incentive discount, and trade-in credit are all monetarily deducted from the actual, capitalized, cost. During this process, any other fees or charges are added to the balance.
Second, the estimated value the vehicle will hold at the end of the lease, or the residual value, is determined and then subtracted from the adjusted capitalized cost. This procedure yields a depreciation figure to be taken into account. The length of the agreement, estimated mileage to be consumed, and make/model of the vehicle are the factors taken into consideration in determining a vehicle’s residual value.
Finally, the money factor comes into play. The money factor is merely a number that correlates with the cost of borrowing money during the lease period. A leaser assesses the money factor at this point, and structures the terms of the lease accordingly.
12. Are there any restrictions set if I opt to drive a “borrowed” vehicle?
While there are may perks to driving a leased vehicle, there are also some restrictions beset upon those customers who choose to lease. Annual mileage restrictions are among the most major limitations for these drivers. Leasers want their cars returned in good condition, with room for a generous resale price. Leasers thus place mileage caps on their vehicles, typically ranging between 12,000 and 15,000 miles per year. Fees will accrue should one surpass the mileage restriction, usually in increments around $0.25 per mile. If you plan to consistently accumulate 500 miles or more every week, definitely look into your options for taking out a loan.
13. How does purchasing a leased vehicle in a closed-end lease differ from doing so in an open-end lease?
The majority of these purchase rates rely on the residual value, or the value the vehicle holds at the end of the lease in its current used condition. These are closed-end leases, and require the customer to pay the fixed and nonnegotiable residual amount, regardless of actual market price. Open-end leases operate differently, as actual market value helps to determine the purchase price the dealer will ask for. As a customer, you will be responsible for any difference between the residual and actual value when you purchase the vehicle outright.
14. Why use such confusing terminology in describing financing rates and procedures for new and pre-owned vehicles?
While terms such as residual value, adjusted capitalized cost, money factor, etc. can be confusing in their unfamiliarity for many, the Federal Reserve Board now requires dealers to publically denote the down payment amounts, lengths, residual values, and interest rates for all leases. This terminology is accompanied by basic thorough descriptions for purposes of reader comprehension in our FAQ.
