THE CAR-SHOPPING TRIAD
If you have ever compared a car’s MSRP (Manufacturer Suggested Retail Price, sometimes called the ‘sticker price’) to its dealer invoice, you know that a Toyota store makes very little money even when selling at full retail – typically $1,000 – $2,000 per car or less. We hope that you will finance through us, add accessories, or bring your car here for service or a car wash, etc., so that the sale is not a total loss. (This is why you paying cash for a car is no longer a motivator for a store – by paying cash, you are taking away the store’s ability to make money on the sale.)
There are 3 factors that determine how much you pay up front and over time. The most important one is your credit rating. The better your credit rating, the better car you can afford, and the less interest you will pay. If your credit score is in the 500’s, banks will limit which cars you can buy, because they don’t want to take the risk that you won’t repay the loan.
The next factor is your down payment. The more you put down up front, the less interest you will pay over time, and the lower your payment will be. If you put $0 down, your payment will be substantially higher, because the cost of the car gets pushed entirely into the monthly payment.
As a rule, every $1,000 that you put down drops your payment $30 a month. This decreases the taxes and fees that you pay over time, too. If your goal is a low monthly payment, it is a good idea to put as much down as you can.
The last factor is term, or how long you plan to pay for the car. This applies whether it is a financed purchase or a lease. A longer term (like a 39-month lease rather than a 36-month lease) will help to drop your monthly payment.
All these factors balance against each other. Unless you are buying an inexpensive used car, you can’t have $0 down and a low monthly payment (unless you’ve got a terrific trade to use as a down payment), or a short term and a low monthly payment with $0 down. No matter what, you are paying for the car – the cost does not magically go away, and the store cannot afford to sell the car for less than they paid for it.