July 5, 2008 Leasing vs. Buying in today’s market. In the past leasing has been a confusing pitch to consumers wanting more car and lower payments. Many customers tried it and found while they liked the idea of a new car every three years, the limiting mileage per year and questionable “wear and tear” charges at turn-in time, left them cold. Enter 2008; the year of the REBATE. As interest rates have dropped in the general economy, many car companies have trimmed their 0% offers. The result is a trend to consider leasing instead of 72 month loans. If you can answer YES to at least 3 of these five questions, leasing may make sense for you.
1. You drive less than 18,000 miles per year. 2. Lifestyle or work could change, affecting your vehicle needs in the next 5 years. 3. You own a business where a car/truck can be expensed. 4. You prefer vehicles under service warranty during ownership period. 5. You have an above average AUTO credit rating score.
There are several nuances to be aware of when trying to understand how some cars cost more and have lower lease payments than others. Many European vheicles have a higher payment that the Japanese manufacturers (even those built in the USA) because the used car or depreciated value is expected to be higher at the end of the lease period. The higher the residual, the lower your payment (a form of participating in the depreciation of the vehicle during your ownership period). In some cases the manufacturer is subsidizing the interest rate (called a money factor) to help keep the payment down, in the hopes you will return to the brand again.
When shopping lease payments read the fine print. Dealers often advertise leases as a lump sum of the total payments, or put heavy down payments and LOW mileage allotments on the offer. Many national television ads are pitching models the dealers don’t stock or require “dealer participation” which means the dealer loses money doing one of these deals, so they don’t have to honor the ad. BEWARE of leases that want multiple security deposits to make the deal. IF you total the car you may have a tough time getting those deposits back. AND last but not least, make sure your lease has GAP protection in the contract. GAP covers any difference between the value of the vehicle and the insurance payoff in the event of a total loss.
Most leasing offers advertised today are a great way to get into a new car without a long term relationship. Look for new models which often offer great intro deals to get the cars out on the street. Hybrids however, have lousy lease programs as the banks are reluctant to stick their neck out on a residual when the technology is changing so fast and they are selling so well there is no money factor discount going on.
If you want a great deal without the hassle, on your next car go to www.mycarlady.com.
Yorus, SLM]]>
