Christie's Car Keys

 Lease or Buy? 
 
When it's time for a new vehicle, should you consider leasing instead of purchasing?  Many people might not because of the perception that leasing is not as desirable or because they aren't very familiar with how it works.  But in reality, leasing a car is much like renting a house or apartment instead of buying, and can be a very good alternative. Let's take a look at automobile leasing and what some of the benefits can be for you.

Lower Payments. A lease payment for a car is based on the financial institution's estimate of what the depreciation and "usage" fee for the vehicle will be over the term of the lease.  Lease terms vary but the most common leases are 36 or 48 months.  Since you are paying only for the time you are using the vehicle, the payment can be significantly lower than purchasing.  In addition, the down payment is frequently lower as well, meaning less money out of pocket up front.

Change Vehicles More Often. Many people who choose to lease also find it desirable because it makes it possible for them to trade-in more frequently without being concerned about a payoff. So if you like to drive a new car every few years, this might be a great option for you.  Plus, because the payments are lower, you may be able to afford a better equipped, higher-priced vehicle as well.

Maintenance. In most cases, a leased vehicle is covered under factory warranty for the entire term of the lease, alleviating maintenance concerns.

Business Tax Advantage. If the vehicle is for business use, there can be tax advantages to leasing over buying. Check with your employer or accountant to see if this applies to you.

Leasing has seen ups and downs over the years. It peaked in 1999 with 3.7 million deliveries. Then hit a low point in 2009 but since then it has steadily grown, passing the 2 million-unit mark in 2011, reaching 2.5 million in 2012 and exceeding 3 million in 2013, according to Manheim. Leases accounted for 26 percent of all U.S. new-vehicle sales last year, up from 22 percent in 2012 and 17 percent in 2009, according to Edmunds.com. In the first quarter, leases accounted for 28 percent of all new-vehicle sales, up from 26 percent the same time last year, says Jessica Caldwell, senior analyst at Edmunds.com.

"Leasing continues to grow in popularity among car shoppers, especially those hoping to stay within a strict monthly budget," says Melinda Zabritski, Experian's senior director-automotive credit. The average monthly lease payment of $420 was $51 lower than the average loan payment this year, she says. "That can make a big difference to consumers trying to stretch their dollar."

As for disadvantages, one of the most common has been that most leases come with a mileage allowance per year, which is typically 10-12,000 miles.  So for those who routinely drive in excess of that amount, leasing has not been as good an option in the past.  However, leases today can be tailored to address the mileage minimum and still maintain an attractive payment, so this may not be a deterrent any longer. 

And one more thing to consider, for those who like to keep their vehicle for a long time (more than 6 years) purchasing will likely still be the best option. 

Still not sure which is right for you? Ask your sales consultant to review both scenarios with you so you can make an informed decision.

Christie Walin is Director of Marketing for Modern Automotive. You can reach her with questions or comments at askchristie@modernauto.com.


Categories: New Inventory, Finance
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