BY GERRY MILES
The question of lease vs. traditional financing is one that comes up often. It’s the puzzling question with so many factors: cost, length of the lease and residual value at the end to name a few.
Quite frankly, with the cost of new cars today, many people can only afford to lease (or some prefer to say “rent”) a car with a payment in their price range and maybe get a more expensive or desirable model with doo-dads and such. And if we’re being honest, there truly are no more stripped down models given the standard content on cars today.
A survey from edmunds.com shows that a surge in leased car sales through May that 25 percent of all cars sold were leased, tracking to smash last year’s leased rate of 22 percent. (Leasing and new vs. used trends can be found in Edmunds.com’s Car Shopping Trends Report.)
“Lease offers have become more important to automakers’ and dealers’ sales strategies,” says Edmunds.com Sr. Analyst Jessica Caldwell. “Luxury brands have for a long time relied on leasing to maximize their sales volumes. Now mainstream brands are riding that wave, drawing buyers with the promise of lower monthly payments through leasing.”
A monthly lease payment is often less than the monthly payment on a new or even a used car. However, if the driver keeps the car for six years or more, a used-car purchase generally works out to be less expensive than either leasing or buying a new car.
The old saw was that “I’ve always got payments so why not keep the car payment?” If that’s true and you always want the latest and greatest, a lease may be just right for you. If you desire to have a long-term reliable ride and use the car payment for something smart like a ROTH retirement fund, vacation, or a new roof, then leasing is not the way to go.
Dealers, I’d wager, love a leased car for a simple reason: They get to sell the same car…TWICE!
Yup, it’s a sale when they lease it and it leaves the parking lot. And under the conditions of the deal, it will come back in a certain condition with a certain amount of mileage, wear and tear and still be worth X dollars in 3 years. The dealer then sells that same car, again! Winner winner, chicken dinner.
Sometimes, says Edmunds.com, a leased car can hold its value especially well, making its residual price a bargain to pay in order to take home the car at the end of the lease. In some cases, lessees can leverage equity that they’ve built up in a leased car. I’ve never heard of this happening, but on paper it works out just fine.
Edmunds.com also notes that lessees might be able to enjoy a tax benefit if they use the leased car for work (though you should talk to your tax planner to understand whether you qualify).
There’s no hard-and-fast rule that says car shoppers should focus on new or used cars, or if they should buy or lease, says Edmunds.com. But if a car shopper understands the advantages and disadvantages – as well as the math – behind each option, the choice can be a lot easier. Edmunds.com helps car shoppers understand and evaluate all ownership costs with its True Cost to Own® (TCO®) calculator at http://www.edmunds.com/tco.html.
Edmunds.com explains all of the pros and cons in the “New vs. Used vs. Lease” conundrum at http://www.edmunds.com/car-buying/compare-the-costs-buying-vs-leasing-vs-buying-a-used-car.html.
A forewarned consumer is a smart consumer.
Caveat Emptor: Let the buyer beware…and sharpen your pencil.