Leasing in Today’s Auto Market

Ailing automakers seem to have gotten enough footing now to begin leasing again. It’s especially important to the luxury brands to make leasing available to consumers; for many, driving a luxury vehicle is only possible with a lease’s lower monthly payments as compared to car loan payments based on the price of the vehicle. However, shoppers still need to consider a few things before deciding with certainty that a lease is the way to go.

This time last year, many automakers had suspended their leasing programs. In recent years, leasing made up about 20% of new car deals. In August the percentage dropped to 7.2% of new car deals. With lower resale values, a global economic crisis, plummeting sales and high gas prices, most automakers simply couldn’t afford to offer lease options. Now the economic environment seems to be stabilizing and leasing is up; it hit a high of 12.8% in October 2009.

Many car buyers like to have a leasing option open to them when looking for a new car, but some say consumers need to be wary of attractive lease deals and consider the details of the transaction. In some cases it may indeed be of benefit; in other cases it’s best to walk away.

Jeff Bartlett, who is deputy editor for autos at ConsumerReports.com spoke about the realities of leasing recently. He said customers who lease a new car lose the most value in the vehicle as it depreciates rapidly and they also give up long-term value in the car.

Bartlett says, “Leasing is the answer to the question, ‘What can I do to pay the most for a new car?’ The answer is pay for a vehicle during its period of greatest depreciation.”

However leasing luxury vehicles such as BMW, Lexus, Jaguar and Mercedes can make sense considering the slower rate of depreciation such vehicles offer. Also, leasing can be a great deal for businesses and the self-employed, who deduct the use of the cars at tax time.

There are other ways to use leasing as a benefit. If you’d like to have a new car that is continually covered by a factory warranty, always have the latest in technology and features and change vehicles frequently, leasing may be the way to go, says Philip Reed, senior consumer advice editor for Edmunds.com. In these cases, a lease for three years to obtain maximum value combined with a low down payment is the best option.

Reed said, “Leasing is about maximizing your cash flow and not tying up your money. If you get in an accident and the car is totaled in a few months, insurance will pay it off, but you’ll lose a good part of what you put down.”

Always read the fine print in a lease deal and do your homework before signing any lease agreement. Make sure the lease on your new car meets your needs, just as you would with a traditional purchase.

Reed warns, “There are a lot of leases advertised at $199 a month, but you’ll have trouble getting that because the dealer didn’t list sales tax, which is in the lease, as well as lending fees.”

Try to estimate the miles you’ll put on the car as best you can. If you buy too few miles, you may end up not using the car to avoid penalties, while still paying your monthly lease payment. It’s better to buy miles up front, but you also need to try not to buy more than you need, says Bartlett.

Leasing a new car can also leave you with less flexibility if your needs change. If you lease a new car and purchase 10,000 miles a year and you get a new job that requires 12,000 miles a year in commuting, you’ll wind up paying for extra miles you drive. In the event of a layoff or job loss, you won’t be able to trade the car in for a cheaper one or sell it.

Bartlett says, “If you agree to make 24 payments, you can’t just make 18 of them. It’s like a cell phone plan. If you break the contract, you can pay extra, but then you’re paying for a car you don’t have.”

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