Should You Lease Your Next Car?

car leasingCar leasing has made a big comeback after a couple of years in the doldrums during the Great Recession. Over 25% of new cars are now leased.

The reason that leasing took a slide is not that automotive consumers didn’t want it; car manufacturers (especially American manufacturers) lost their shirts by being too agressive with their lease deals. Consumers loved it but many car makers lost millions and millions of dollars.

So they slowed down and even stopped leasing in some cases. Now, some years later, they have returned — in a big way. Nearly all other car companies are now offering some of the best lease deals we’ve seen in a long time.

Some of the car makers currently offering special car lease deals are Honda, Acura, Nissan, Toyota, Mercedes, Mazda, Mitsubishi, Scion, Subaru, Volkswagen, Volvo, Infiniti, Audi, Hyundai, Jaguar, Land Rover.

Many people could easily qualify and be paying far less in monthly car payments if they leased their car, assuming they qualify and are right for leasing, which everyone is not.

However, many people don’t lease because they 1) don’t understand leasing and are afraid of it, 2) think it’s like throw-your-money-away apartment leasing (which it’s not), 3) think it’s only for businesses and tax benefits, or 4) have gotten bad advice from friends or relatives (who don’t understand it either).

So what are the benefits of leasing?

First, monthly payments are 30%-60% less than car loan payments, for the same car. Second, if you like to trade cars every few years, with leasing, you don’t have the hassle of selling or trading a used car. Third, there’s usually no down payment required. Fourth, in most states, you save on sales tax. And fifth, you get automatic free GAP insurance with most leases (in case your car is stolen or wrecked).

Car leasing is not renting. It’s simply an alternative way of financing a car if you know you will want another new car in 3-4 years. You pay only for the part of the car you use — the amount that it depreciates in value — rather than the entire price of the car. People who buy cars with loans lose money on trade or sale due to depreciation.

Car leasing works best for people who drive an average number of miles each year (about 15K miles), who have a stable lifestyle (ending a lease early can be expensive), and who take good care of their cars (returning a leased car with damages can be expensive).

Monthly car lease payments depend on several factors. Most important is the price of the car. Many people who lease don’t undertand that you should negotiate the price of the car, or take advantage of rebates, the same as if you were buying the car. The lower the price, the lower your monthly lease payments.

Second, the lease-end residual value is important. This is the estimated value of the vehicle at the end of the lease. The higher the residual value, the lower your monthly payment. Some car brands and models have higher lease residual values than others. See How to Get the Best Lease Deals for more details.

Third, money factor should be as low as possible. Money factor is an expression of the interest rate you pay on your lease financing. It’s a small number such as .0022, which is equivalent to 5.28% APR interest. Just multiply the money factor by 2400 to get equivalent interest rate. The lower the money factor, the lower your monthly lease payment.

Leasing is not right for everyone. But if you are a good leasing candidate, you can save money on your new cars if you lease — especially now that so many car companies are offering incredible lease deals.

To better understand car leasing, we recommend that you visit LeaseGuide.com and check out the free Car Leasing Guide, which is an online aid to understanding how car leasing works. There’s also a Lease Calculator you can use to calculate monthly lease payments for any new car.

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