Most people think being a true car owner means buying a car. However, there are some very good arguments for leasing a car instead of owning one. Even today, nearly 18 percent of new car shoppers prefer leasing over buying. High used car values and low interest rates have made leasing an attractive alternative to buying when you don’t have enough cash socked away for a new vehicle.
Peter Bohr of Orange County Westways, Al Hearn of LeaseGuide.com, and Philip Reed, senior consumer advice editor for Edmunds.com help eliminate the confusion on leasing a car, and when it would be more advantageous to purchase one instead.
First off, it’s recommended that all leased cars should be under warranty for at least 36 months. Therefore, if you have a 36-month lease you’ll save on major vehicle maintenance costs and have a lower monthly payment.
Secondly, if you trade in your car every few years, you get to keep up with all the new technology made to model redesigns. Voice activation commands, auto-start, and back up cameras are just a few perks made to models in recent years. Hearn warns that longer leases will drive up your monthly payment, because the car’s value drops when your lease ends.
Also, if you end up with a low interest rate on a car that has a high resale value, you’ll practically be guaranteed that low monthly payment. Compare your dealer quote with a few other dealerships to make sure the rate you are receiving is competitive enough for your car and lease length.
ALG, a company many dealerships use to forecast vehicle residual values, names car models like Mazda, Honda, Subaru, Toyota, and Hyundai as having the highest residual mainstream values, while Infiniti, Lexus, Audi, Mercedes-Benz, and Acura have the highest luxury brand values.
Hearn says models like the ones above will net you a lower lease payment because of their high residual values, but it’s up to you to nail down a low monthly payment and watch out for fees associated with your lease.
Both Reed and Bohr agree there are four things to keep in mind when settling on a monthly lease payment:
1. The car’s capitalized cost (sales price)
2. The residual value of the car (resale value)
3. The lease’s money factor (interest rate)
4. Factor in fees (security deposit, acquisition fee, and disposition fee)
Always negotiate on the car’s capitalized cost, the same way you would if you were buying the car. The lower the cap cost, the lower your monthly payment.
Darrell Parrish, author of Lease Cars: How to Get One, says the devil is in the details. Beware of the following:
Excess mileage charges
If your lease dictates only 30,000 miles to be driven over a three year period, and you go over that, you’ll be paying 20 cents a mile on every mile over the limit. Times that by 10,000 miles, and you’ve just accrued an additional $2,000. Of course, were you to purchase the car at the end of your lease, the excess mileage charges would be waived.
Run the numbers
Use the manufacturer’s suggested retail price (MSRP) against your down payment cost, monthly payment cost, and then factor in acquisition and disposition fees. Your total could break even or come close to the purchase price of buying your chosen vehicle instead, in which case it would make the most sense to own rather than lease.