I am often asked about the leasing environment. With gas prices that eclipsed $4 per gallon just a couple of months ago, and the anticipation that it will be that price again, people are looking hard at their car payments. I talk to many people who are grasping to get a lower car payment so that they can afford to spend more at the pump during gas price spikes.
More and more people are considering leasing as a way to get a newer, more fuel-efficient vehicle and to guard against the changing used car market prices that swing with gas prices. I just reported in my free weekly newsletter that there will be a flood of new vehicle launches over the next three years. Those cars will be safer, use less fuel, and will be state-of-the-art. Given that, do you want to lock yourself to a 5 or 6 year note today?
At least once I week on the radio show, I remark that leasing is not for everyone. When I get the question of lease versus buy, my first question back is always how many miles per year do you drive? Some people, especially third-party leasing companies, will disagree with this, but I maintain that if you drive more than 15,000 miles per year or close to that, you have no business leasing. There are some real advantages to leasing for sure, but only if you are not a high-mileage driver.
The reason I like leasing is because if you just stay within the allotted mileage, you cannot owe more on your car than its value at the end of the lease. If you do, simply walk away. If you have equity, you get to keep that for your next lease or purchase.
Leasing dried up completely in 2008, and it was just recently that the automakers started getting back into leasing. Many of them are now pushing 24-month leases, which I truly love. You aren’t looking at any out of pocket expenses on your car except gas and a few oil changes. You won’t need tires, timing belts, transmission service, etc. In two short years, you can get into the latest, greatest vehicle on the market and you can’t be upside down.
Car companies love leases because it puts you back in the market quicker, and they do not have to cheapen their brand with big cash rebates. They can quietly offer incentives of dealer cash or they can lower the interest rate on a lease to virtually zero to make lease payments undeniably attractive. It costs them a lot of money, but it is worth it to sell you a new car sooner.
Ford and General Motors are both pushing 24-month leases right now on some of their most popular models. Even Mercedes Benz is getting into the act with a $99 per month lease on the Smart Car for two years, with just $999 due at signing. Buick is in the midst of a campaign featuring a two year lease deal on the Buick Enclave.
Toyota and Lexus continue to support low lease payments, and even Chrysler is back in the leasing arena for the first time in a lot of years. Qualifying for a lease is also getting easier these days. You don’t need perfect credit for leasing like you did just a couple of years ago, and leasing is a great way to re-establish your credit. A lender looks favorably on the probability you will make 24 payments instead of obligating yourself to 60 or 72 months.
Again, leasing is not for everyone. I would sure look at numbers on leasing, however, if you are in the market for a car and not a high mileage driver.