Finance Tips from
Are monthly payments necessary?
Unless you're in the position to pay cash for a new or pre-owned vehicle, you'll need to establish a payment plan to obtain the vehicle. Two options exist - taking out a loan or leasing.
How do loans and leases differ?
When you take out a loan, all of the money used to pay it off applies to your eventual ownership of the vehicle. The initial down payment and principal on the loan cover the total cost of the purchase. Lease payments, however, apply only to the use of the vehicle
When is ownership transferred?
When paid in full, a loan terminates and you assume ownership. Your bank sends you the title that had been held while the loan maintained an outstanding balance. When a lease period ends you have the choice of purchasing your lease or turning it back to Ford Motor Credit Company. During the entire lease period the lessor (FMCC) retains ownership and simply allows you to use the car. Ownership is only transferred if you chose to buy the vehicle after the lease terminates.
How are monthly lease rates determined?
In formulating a monthly payment structure, a lessor is primarily concerned with the extent to which the vehicle will depreciate throughout the lease and the cost of borrowing money to finance the car during that period.
Three key elements:
First, the adjusted capitalized cost is determined. This figure represents the real purchase price after elements such as the down payment, incentive discount and trade-in credit are deducted from the capitalized (actual) cost, while any fees or charges (e.g. destination) are added.
Second, the residual value, or estimated value of the vehicle at the end of the lease, is determined and then subtracted from the adjusted capitalized cost to yield a depreciation figure. The residual value depends on the length of the agreement, expected mileage and make/model of the vehicle.
Finally, a lessor assesses the money factor, a number that correlates with the cost of borrowing money during the lease period.
What factors determine the purchase price at the end of a lease?
Most leases rely exclusively on the residual value in determining the end of term purchase price. These closed-end deals require you to pay the fixed residual amount regardless of the actual market price. Open-end leases work differently in that the actual market value helps determine the purchase price.
How are loan rates determined?
The size of monthly loan payments depends on the amount borrowed, the length of the loan, the interest rate and other factors such as your credit history. Paying more money initially lowers the principal of the loan, thus reducing individual payments. At any period during the loan you may opt to pay off the principal in its entirety, at which point the title of the vehicle is transferred to you.
General loan specifications:
Down payment amounts may range between 10 to 20 percent of the vehicle's total cost, although some purchases require no down payment. A typical loan period is five years but other options exist. Our Business Manager is able to discuss this with you.
Are loans available for used vehicles?
Yes sometimes a down payment is required and the interest rate may vary by the age and mileage of the vehicle
Can extra fees and charges be financed?
Yes, registration, taxes, extended service plans and other supplemental charges may be included in the financing plan.
Which option makes the most sense?
The answer to this question depends on how you plan to use the vehicle. If you like the idea of driving a more expensive vehicle for a smaller monthly payment, leasing is a great option. If you drive more than 12,000 miles a year additional miles can be purchased. However, if eventually owning the car is important, financing with a loan is the way to go.
What are the restrictions of driving a "borrowed" vehicle?
Annual mileage restrictions are a major limitation for customers who choose to lease. Lessors want their vehicles returned in saleable low-mileage conditions, so they place mileage caps on them. The base FMCC lease is 15,000 miles. Beyond the established limit, fees accrue on a per-mileage basis. If you know you will use more than 15,000 per year it is important to buy more miles up front because the miles will be more expensive if you go over your limit when you return your lease. If most of your driving is local, leasing makes sense.
What are the other virtues of a loan?
Loans are also sensible for those who want to customize their vehicles, plan on keeping their cars for long periods of time and plan to re-sell their vehicles to help recoup the costs of ownership or expenses of additional cars. Another reason is the potential wear charges for those who quickly wear vehicles out. Leasing customers can purchase WEARCARE to prevent some "excessive wear" charges. Ask your salesperson or our Business Manager for more details.
If your vehicle is totaled in an accident or stolen and not recovered, this insurance will pay off any difference between your outstanding loan and what your insurance company will pay you. It will also cover your insurance deductible up to $1000 and pay up to 2 months of past due monthly loan payments.
Estate and Payment protection
If you become ill or are injured, payment insurance protection will pay your loan until you can go back to work. If you are on long-term disability your loan will be fully paid off. Estate insurance protection will pay off your loan in the event of death. Your estate will inherit a free and clear title to your vehicle.