Six tips for a better deal as auto leasing grows

Posted: June 22, 2013

Even with low interest rates that make buying a car more affordable, many consumers are leasing a new car or truck instead.

New-vehicle leasing climbed in the first three months of 2013 to the highest level in seven years, according to Experian Automotive, a unit of credit-data-tracker Experian. Leasing made up nearly 28 percent of all new vehicles financed in the quarter - the greatest proportion in records that go back to 2006.

"Lenders have seen overall stability come back to the market since the recession," said Melinda Zabritski, senior director of automotive credit at Experian, "and leasing has gradually returned as a larger part of many lender strategies."

Leasing has its perks, especially if you want to drive a new car every couple of years while keeping monthly payments low. But understanding whether leasing is right for you and how complex lease agreements work is essential to avoid ending up paying more than you bargained for.

Here are six tips to get a good deal when leasing a new car or truck:

Leasing vs. buying. Generally, buying a car and holding onto it for many years is the least expensive way to own a vehicle.

While cars and trucks depreciate, the vehicles retain some value that you can always turn around and apply toward your next purchase.

But if you lease, you only get to drive the car for a fixed period of time. Your monthly lease payments go toward paying for the depreciation, not ownership. And there are restrictions on how many miles you can rack up on the car during the lease period. When the lease term expires, you can buy the car or lease another new vehicle.

Leasing offers many benefits, particularly when it comes to payments.

While some dealerships will ask for some money down, the monthly payment will typically be less than you would pay if you borrowed money to buy the car.

"If you're really focusing on your short-term financial situation, lease has much appeal," said Jeff Bartlett, deputy editor at ConsumerReports.org. "But if you have the luxury of looking long-term, buying will be a better investment."

OK to haggle. Consumers have become accustomed to haggling over the price of a car, down payment, or interest rate on a loan when buying a car, but few realize you can employ the same strategy when you lease.

"Many people fall into the allure of the low monthly price that is being offered to them," Bartlett says. "You're just handing over to the dealer more money."

As in a purchase transaction, experts recommend that someone considering leasing familiarize themselves with the sticker price and any factory incentives being offered on the car. Then haggle with the sales staff.

Mileage is a worry. Lease contracts include limits over how many miles you can put on the vehicle. Once you go above the limit set forth in the lease, you'll be charged a per-mile rate.

A common annual limit is 12,000 miles, though some drivers may be tempted to opt for as low as 10,000 miles to save money. Be realistic about how much you'll need to drive, or you could face hundreds of dollars in fees at the end of the lease term.

Three-year limit. More than half of all new auto leases are for two to three years, according to Experian.

Dealerships are increasingly offering longer lease periods, but you should resist leases that run for more than three years, advises Philip Reed, senior consumer advice editor for car research site Edmunds.com. That's because longer lease terms can expose you to having to pay for repairs such as tire and brake replacements.

Don't buy your lease. At the end of the lease term, you'll have the right to buy the car you've been leasing for a predetermined amount known as the residual value.

With few exceptions, you'll generally end up paying more than if you had just bought the car to begin with, says Bartlett.

Always an out. Websites like www.leasetrader.com and www.swapalease.com connect drivers who want out of their lease agreement early with car shoppers looking to take over an auto-lease contract.

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