Dreaming of a new car, SUV or truck but worried about the cost? Leasing could be your ticket to ride. With the economy in recovery, dealers and the captive, and aftermarket lenders they access, are offering some very good deals. And, leasing isn’t just for tax advantages or for luxury cars anymore. “Leasing has moved to include the full spectrum of models,” according to Director of Business Development Richard Van Hassel of Volkswagen Credit and Audi Financial Services.
The trend toward leasing is picking up, according to Ally Financial’s Director of Consumer Products, Greg Skurkovich. “Leasing volume has been increasing steadily for the past couple of years…we plan to continue that momentum in 2012.” Ally provides lease financing for General Motors, Chrysler, Suzuki, Saab and Maserati customers. In fact, leasing is back to its highest rate since 2005, according to several sources.
Behind the leasing upsurge, which for some brands accounts for up to 30 percent of their business, are several factors. The improved economy has resulted in more credit availability and the job market is stabilizing (unemployment in Colorado is now below eight percent). “We’re seeing a broader credit range of customers,” said Ally’s Skurkovich, who also lists stronger consumer confidence and the highest-ever average age of vehicles as contributing factors.
Why lease instead of own? “Leasing is just a very affordable way to drive more vehicle for less of a monthly payment and little or no money down,” according to American Honda Finance’s Dealer Relations Manager, Don Hull. Monthly lease payments generally will run 30 to 60 percent lower than loan payments, even with zero-percent loans.
Good leasing candidates are drivers who want a new vehicle every three or four years, want the latest technology and safety features, want the comfort of a warranty, can reasonably predict how many miles they will drive in a year, take good care of their vehicles and don’t like to negotiate over trade-ins.
According to Ron Emery of Toyota Financial, “Someone with a three-year lease can have three brand-new cars in the same time as someone who finances one 72-month retail contract.” These days, three years can bring some substantial technological, safety and fuel economy improvements.
The hassle factor is also a major leasing motivator, according to Emery. “When customers bring back a leased vehicle there is no negative equity and they aren’t subject to the volatile used car market. They just hand back the keys and walk into a brand new car. And if there is equity (the car’s resale value is worth more than the dealer originally estimated at the end of the lease) a customer gets to take advantage of that.”
“A lot of people will finance a car for six or sometimes seven years but they don’t keep the car for more than three or four years,” said VW’s Van Hassel. “They’re financing the whole car but never really paying it off, so they’re paying interest on part of the car they’re never going to use.” The difference with leasing, and the main reason monthly payments are lower, is that monthly payments mostly pay for the depreciation cost of the vehicle during the term of the lease. Depreciation is the cost of the car minus the estimated resale value of the car at the end of the lease period. In short, when you lease, you’re paying only for the use of the car for the lease period, not the full cost of the car.
Leasing used to be complicated and confusing for consumers. Federal regulations have made it much more transparent. When a price is negotiated, there are no hidden fees; the dealer discloses everything, including his profit. The only variables consumers have to worry about are damages above of the amount specified in the lease and mileage in excess of what’s specified.
Is leasing for you? Visit a dealer and see. You may be offered a deal you can’t refuse.