Cars and Boats

The Big Picture

Choosing the right car for you includes considering what you can afford, how you will use it, and the kind of car that matches your needs. There are web sites that can help you make a choice.

There are pros and cons for both new and used cars.

If you are getting a loan for a car, there are several choices, including bank financing and dealer financing. You'll make your decision based on interest rates, and reliability of the lender.

Looking for something specific? There are websites to help you find the right loan and the exact car you are looking for.

Is a service contract something you need for your car?

Check out the car-comparison worksheet.

Almost everyone wants and needs a car. Your car is likely to be your second most expensive investment—second only to your home. It is very important that you buy the right car at the right price with the right financing. And you have a lot of information available to you in magazines, automobile sections of your local newspaper, car dealers' brochures and the Internet.

Choosing the Right Car

Automobile advertising is dramatic and exciting. They often show cars speeding through traffic, climbing goat-paths on mountainsides in bad weather and performing race-track maneuvers. In real-life, you will need your car to do much more common chores—going to work in stop-and-go traffic, taking your family to events and going on trips. Consider the requirements for your real life:

Your answers to these questions will help you determine what kind of car you really need. Your personal preferences can be taken into account, but keep them in perspective. Now might be a good time to figure out what you really need by keeping a record. Note the distances you drive, the reasons for each trip and the problems that you have with your current car that you want to solve with a new car.

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Buy or Lease?

Once you know what sort of payments you can afford and the car you want, you'll want to consider if buying or leasing is a better choice for you.

It's important that you take the time to read the lease contract/agreement. If you have a question about any terms or numbers, make sure that the salesperson explains them to you. If the salesperson doesn't know or is not clear, or has to ask the sales manager more than two times, walk away from the lease! If they do not understand the terms of the lease, how could you?

Know Your Lease
A car lease is a rental agreement. You agree to use a car for a monthly payment for a certain length of time. You also agree to keep the car in good condition and to drive it no more than a specific number of miles. Many people, particularly those who want a new car to drive every two, three or four years, find leasing to be a good option.

Two terms that you should know if you're thinking about leasing

Capitalized cost is the selling price or retail value of the car when you lease it. If there is a down payment, trade-in or manufacturer's rebate, the capitalized cost will be reduced by these amounts, called the capitalized cost reduction. The number you have then is called the adjusted capitalized cost.

Residual value is the estimated worth of the car at the end of your lease.

The difference between the adjusted capitalized cost and the residual value divided by the number of months in the lease becomes one of two parts of your monthly payment.

The second part of the monthly charge is called a rent charge (sometimes called the money factor). The rent charge is the dealer's cost to acquire the car, plus the overhead. The rent charge and automobile taxes, divided by the number of months in your lease, are added to the monthly payment determined by the difference between the capitalized cost and the residual value.

You will find financial calculators at They will prompt you for numbers associated with buying and leasing to help you determine the better choice for you.

Advantage of Leasing
The good thing about leasing is that you can lease a car with less money up front at relatively low monthly payments (note that most leases require a down payment, usually at a fixed amount). But at the end of the lease you won't have a car. You turn the car back to the dealer and lease another car. You can also buy the car for the pre-determined end-of-the-lease price.

Advantages of Buying a Car
Buying a car will require a down payment as well as monthly loan payments that are probably higher than the monthly lease payments. Although buying will be more expensive initially, at the end of the loan you will own your car.

Additionally, you will not have the mileage penalty and selling restrictions that are part of a leasing arrangement. If you continue to drive your now-older car, and take care of repairs, you can enjoy years during which you won't have car payments. People who buy cars own them an average of seven years.

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Making the Buy

Negotiate—Even for a New Car
If you are going to buy a new car, log on to one of the automobile Internet sites to get a dealer's cost for the car you want. The dealer's cost, or invoice price, is the price that the manufacturer charges the dealer for the car. Expect that the dealer will not sell the car for less than his cost. A fair deal for you is to buy from the dealer at his cost plus 2 percent (Expect to pay $20,400 for a car that cost the dealer $20,000). If a car is very popular, you may have to pay more. However, if a car is not selling well, you may be able to get it for less. Factor in any manufacturer rebates or holdbacks—they give the dealer more room to negotiate.

Learning the Terms
Negotiations often have a vocabulary of their own. Here are some terms you may hear when you're discussing price.

The invoice price is the manufacturer's initial charge to the dealer. This is usually higher than the dealer's final cost because dealers receive rebates, allowances, discounts, and incentive awards. The invoice price should include freight (also known as destination and delivery). If you're buying a car based on the invoice price and if freight is already included, make sure freight isn't added again to the sales contract.

The base price is the cost of the car without options; it includes standard equipment and the factory warranty. This price is printed on the Monroney sticker.

The Monroney sticker shows the base price, the manufacturer's-installed options with the MSRP, the manufacturer's transportation charge, and the fuel economy (mileage). Affixed to the car window, the Monroney sticker is required by federal law and may be removed only by the purchaser. (It is named after the congressman who sponsored the legislation requiring its presence on new cars.)

The dealer sticker price, usually on a separate sticker, is the Monroney sticker price plus the suggested retail price of dealer-installed options, such as additional dealer markup or additional dealer profit, dealer preparation and undercoating.

Choosing the Car
With the price you are willing to pay fixed in your mind, it's time to visit a couple of the new car dealers that carry the car you would like to buy. Let the salesperson know that you are serious about buying a car and are shopping for the best deal. Test-drive the car you're interested in and check the options to see if they are important to you. Ask the salesperson for his best price—in writing.

Go to another dealer and repeat the process to get another price. Compare the prices and factor in another important consideration—the reputation of each dealer for customer service. Once you've struck the deal, you'll become a customer of the service department.

Buying a used car
A used car could be your best value. Get the price for a car or cars you like within your budget.

The majority of cars sold are used cars, and there are many places to shop. You can check the prices of cars that interest you on the Internet. All of the car manufacturers have Web sites. There are many car sites that will provide you with very helpful information about and comparisons of all makes and models of used cars, as well as current prices. Two of these sites are:

  1. Edmunds
  2. National Automobile Dealers' Association

These organizations publish the same information in printed form, as guides. You can find them at your local bookstore or library.

With so much information available, you can determine the reliability of the makes and models and the availability and the cost of the cars sold in your area. Compare these best deals to the new cars you have considered.

Check out new-car dealers, used-car deals and the classified ads to see what cars are available. Check online for reliability ratings. Request service records from the owner or dealer. Ask what work or repairs have been done on the car and ask to see the receipts. If the car is under warranty, be sure to get that in writing.

Unless the car is certified by the dealer or is still under the manufacturer's warranty, take it to a mechanic for a full inspection. When you're satisfied that the car has no hidden problems, make an offer based on the fair market value. The dealer or car owner will have a lot of room to negotiate with you. Always be willing to walk away if you feel uncomfortable. The instant you are not ready to walk away, you are no longer negotiating, and you are no longer in control.

If You Have a Trade-In
There is one simple rule about trade-ins: don't discuss it until you've agreed upon a price for the new car. Use either the Edmunds or Kelley Blue Book site to check the value of your car. If your new-car dealer offers you a price close to the value of your trade-in, you'll appreciate the ease of accepting his offer. If the dealer doesn't see a profit in buying and selling your car, you won't be offered much for it, so you might want to skip the trade-in option and sell your car elsewhere.

Car Comparison Worksheet

Use this worksheet to figure out the cost of cars you are considering.

  Car #1 Car #2 Car #3
Base price1      
Extras, if any1      
Total cost of car1      
Down payment      
Monthly loan payment2      
Gas (estimated, monthly)      
Car insurance3 (monthly)      
Maintenance4 (monthly)      

Information Sources
1Check automobile prices at Edmunds, Kelley Blue Book, or NADA.
2Learn current automobile loan rates at or
3Compare car insurance rates at
4Get maintenance estimates at AAA or from Consumer Reports.

Considering a Service Contract
Service contracts provide for the repair of certain parts or problems. These contracts are offered by manufacturers, dealers or independent companies and might provide coverage beyond the manufacturer's warranty. Remember that a warranty is included in the price of the car, while a service contract costs extra. Before deciding to purchase a service contract, read it carefully and consider these questions:

Check with your auto insurance carrier to see if they sell extended warranties; most of the time these are less expensive and have nationwide coverage.

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Selling Your Car

The Big Picture

How to know what to charge for your car.

A sample Bill of Sale will help protect you when you sell your car.

If you want to sell a car to buy another one, you may get a better price for your car if you sell it yourself. Be prepared for the extra effort involved.

Protect Your Sale
Require a certified or cashier's check in payment. Do not take a personal check. Write a receipt with names and addresses of the seller and buyer, the date and the price, as well as information about the car, including the model, year and VIN. You may want to use the sample Bill of Sale:

Sample Bill of Sale

Bill of Sale

Description of vehicle being sold:
____________ _________________________________ ___________________________
(year) (make) (model)
______________________________ ________________________________________
(body style) (VIN) (vehicle identification number)

I/We do hereby sell to:
(Name of Buyer)

For the total sum of $______________________, which has been received. The sum represents the mutually agreed-upon purchase price of the vehicle, between both the buyer(s) and the seller(s). The reason the vehicle may be purchased for a price less than the fair market value is as follows.

To the best of my knowledge, the odometer reading is the actual mileage of the vehicle, unless otherwise stated below:

Odometer reading _______________________ If odometer reading is incorrect, give explanation here:

Notarize your sale
I/We certify under penalty of perjury, that the statements made are true and correct to the best of my/our knowledge, information, and belief. I understand that giving a false statement(s) is a misdemeanor and may be subject to fines, imprisonment, or both.

This _________ day of ___________, (year) _______ This _________ day of ___________, (year) _______
Seller(s) signature(s) Buyer(s) signature(s)
_________________________________ _________________________________
_________________________________ _________________________________
Print Name(s)_______________________ Print Name(s)_______________________
Subscribed and sworn to before me this __________ day of ______________, (year)__________
_________________________________ _________________________________
Notary Public Printed Name Notary Public Signature
My commission expires___________________ Place Seal Here

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Refinancing Your Car

As interest rates continue to go down, you can refinance your car loan and lower your payments. Refinancing your auto loan is much easier than refinancing your home because there is little or no cost involved.

Are You a Good Candidate?
If you have had your loan for a short time (less than half of the term) and you can lower your rate at least 1.5 percent, refinancing is a good idea. Be careful not to obtain another auto loan for the same length of time as the original loan—you would pay more in interest charges than you were on the original loan. For example, if you had a 60-month loan and you were one year into it, you would shop for a loan with a 48-month or a 36-month term.

Shop for a Better Loan
Be on the lookout for fees when shopping for an auto loan. States charge from $4 to $40 for changing the name of the lender on a car's title. Some lenders absorb that cost and others pass it on to customers in processing fees.

Before you start shopping for a better loan, make sure your original is a simple-interest loan and there are no prepayment penalties.

Rule of 78s
If you've signed on for a pre-computed loan (usually offered by second-rate lenders), there's a good chance your lender will use the "Rule of 78s" formula. It's used to determine the amount of each month's payment into interest and principal. If your lender calculates a "rebate" of finance charges for early prepayment, walk away from the loan. This rebate is actually a prepayment penalty, which you shouldn't have to pay.

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Buying a Boat

The Big Picture

Marine loans require down payments, and larger boats require federal documentation.

You will need to get special insurance for your boat.

Owning a boat for pleasure is a popular hobby. If you are thinking about purchasing a boat in your area, talk to the harbormaster at your local marina and the U.S. Coast Guard for information and advice. Do some research on financing and boat insurance as well.

Marine Loans
Marine loans are secured by the boat and offer a fixed interest rate throughout the 20-year life of the loan. The maximum loan amount is generally $500,000. The required down payment can be as low as 10 percent. Any boat that is longer than 27 feet must be federally documented, and all loans must be filed with the U.S. Coast Guard.

Marine Insurance
Homeowners insurance policies usually include some coverage for watercraft, but the coverage is often limited. Typically, a homeowners insurance policy will pay up to $1,000 if something happens to your boat while it is parked at your house. The policy may even offer some liability coverage for you while you use your boat, but it's less than ideal.

The insurance industry generally divides "watercraft" into three categories

All three types of vessels require different insurance coverage. However, you should carry at least $50,000 of liability insurance. As with many other types of insurance, policies vary quite a bit from company to company. Ask for details before you make a commitment.

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