New Car Contracts
You have to read any contract you sign very carefully. A contract for purchasing or leasing a new car involves a lot of money, so pay close attention to the details. We'll take a quick look at:
- Purchase contract
- Loan contract
- Leasing contract.
Purchase Contract
Your purchase contract is the formal agreement between the buyer and seller. It
spells out the responsibilities of both parties to the transaction.
Since it’s written by the seller, the purchase document’s terms and conditions
will clearly favor the seller in the event of a dispute.
That’s why its important to make sure everything is correct with the paperwork
and that the car is inspected inside and out.
If things go south, you won’t have a legal leg to stand on, so take the time to
review all the purchase and contract details now.
You’ll also receive a formal bill of sale as part of the purchase contract
conveying title to you.
Be sure to take the time to read and understand all of the documents before you
sign them. Don’t allow yourself to be rushed or hurried through this important
step.
Your signature verifies that you have read and understood the contract’s terms
and conditions and agree with those terms and conditions as well as all facts
and figures stated therein.
Once everything is signed, your legal options are limited to those spelled out
in the purchase contract.
Loan Contract
If you financed through the dealer, I pity you. Study your loan contract
closely.
You’re spending at least $1,000 extra, so be sure that you’re not making an even
bigger profit donation.
Make sure all the numbers add up and that the interest rate corresponds with
what you “negotiated.”
Watch out for the words “sale subject to financing approval.” If that phrase is
in your contract, do not drive the car away from the dealership until your loan
is finalized.
Otherwise, you are seriously exposed to higher rates and an increased down
payment. The dealer will be calling you in a week or two to let you know the
loan fell through, but that there’s good news also. Another bank will fund your
loan, but at a higher price.
You see, the car dealer’s loan paperwork is a RISC contract. That’s a Retail
Installment Sales Contract that you’re signing.
The dealer sells your loan contract to a financial institution. That bank pays
the car dealer for your vehicle and tosses in a substantial bonus for dealer
from the extra profit built into the high interest rate.
When you sign this type of RISC contract, nothing is final until that RISC
contract has been placed with a lender.
Leasing Contract
You really have to be careful with leasing contracts.
Let me repeat that - You really have to be careful with leasing contracts!
It would take fifty pages or so to warn you of all the possible pitfalls in
leasing contracts.
Here are the most important ones:
- Know the correct residual value for your new car
- Know how many miles you really drive per year
- Know how to convert the “money factor” into APR
- Know how much per month you are really paying
- Know how to calculate your “gross cap cost”
- Know how much you’ll pay for extra mileage
- Know how to compare buy vs lease for a 36-month period
If you don’t know how to do these seven things (and you should already have the
answers calculated), then you aren’t ready to sign a lease contract.
For more information and quick answers to these questions, go to the
Lease Wizard
web site.