About 20% of new-car transactions are leases, but I'm convinced that more people should be leasing. As manufacturers figured out that the cash rebates they offered were hurting resale values, and as the credit spigot began to flow freely again, Automakers shifted incentives from rebates to low-interest financing and leases. You have to also weigh in the fact that the car will always be under factory warranty, so you will not be out of pocket for repairs, and you get more buying options including walking away. You also can eliminate being upside down, and have a better loan to income ratio on your credit bureau. When you lease you don't lease the whole value of the vehicle just the part your going to use. So you have more of you income available for credit. If you know what you're looking for and negotiate smartly, you can save money by leasing and disprove the five myths below.
MYTH #1. Leasing is a bad deal.
In general, if you keep a car well past the day the loan is paid off (or if you pay cash to begin with), you'll save money by buying. But if you trade in your car before the loan is paid off, the value of the trade-in is unlikely to cover the remaining balance on the loan. If you pick a vehicle that has a special lease from the manufacturer you can come out ahead by leasing. This doesn't mean buying a SR8 Challenger 470 horsepower sports car that sale as fast as they arrive. It means looking at the special advertised lease on the manufacture website. These are easy to find; if the vehicle doesn't have a lease special it maybe difficult to beat a purchase loan on the car if you plan on eventually buying the car out right.
Say you negotiate to buy a Chrysler 200 (sticker price: $28,170) for the invoice price -- $25,838 -- with 10% down and a five-year loan at 4.4%. After three years you decide you want a new car. If you trade in the 200, you will likely get about 50% of the sticker price, or $14,025 (the resale value after three years, according to the Automotive Lease Guide). Then you'll have to pay off the loan. Figure your total out-of-pocket cost will be $11,462.
But if you lease that new 200 for three years, your monthly payments will be $290 (Chrysler has been offering subsidized leases on the 2013 200). When you turn in the car at the end of the lease, you'll just walk away (unless you go over your mileage allotment or have unusual wear and tear). Total out-of-pocket cost: $10,150. In this case, leasing would leave you $1,312 richer.
In most states, you pay taxes only on the actual lease payments, so leasing can put you even further ahead
MYTH #2. It's nearly impossible to negotiate a good lease. Almost every facet of a lease is negotiable. But first you need to understand the jargon:
Capitalized cost. In the leasing universe, this is the vehicle price. Shop for your lease at the dealer, focusing on the Capitalized cost.
Money factor. The lower this number, the better (you have to multiply it by 2,400 to get an estimate of the interest rate). If you want to know the money factor just ask the dealer will tell you. The Money Factor can make or break a lease the better the money factor the better the lease. Most interest on a lease will be around 1% comparatively.
Residual value. This is the value of the car or truck at the end of the lease.
An inflated residual value lowers your monthly payments, but it can also handcuff you. A more realistic residual value will make it easier to sell the lease, trade your vehicle in the middle of the lease or buy the vehicle at the end of the lease.
MYTH #3. Only businesses get a tax break.
Tax laws allow businesses to deduct monthly leasing payments as an expense.
But individuals get a tax break, too. In most states, you pay sales tax only on the monthly payments, not the vehicle price. In the Accord example above, you'd owe taxes on about $10,150 in payments rather than the $25,838 vehicle price. (Arkansas, Illinois, Maryland, Oklahoma, Texas and Virginia charge sales tax on the entire price.)
MYTH #4. You will have to pay hefty fees when you turn in the car.
The typical annual allotment of 10,000 to 15,000 miles, and the 15 to 25-cents-per-mile penalty for exceeding the limit. If you buy a car, you're also penalized for higher-than-average mileage when you trade it in. this is about the same thing. You only pay for miles if you walk away, 90% of people that get out of the vehicle before or after the lease is over TRADE the vehicle. If you trade you don't have to pay for the extra miles. If you SALE the car you don't have to pay for miles, and if you BUY the lease out you don't have to pay for miles. Remember you won't get reimbursed so don't get to many miles up front. Raising the miles per year is a little cheaper at the beginning but only if you walk away will the miles even come into play. So try to figure how many miles you drive before you go to the dealer, so you don't panic thinking you need more then you do. The higher the miles the higher the payment.
You may also be able to negotiate a higher mileage limit in exchange for a higher monthly payment and still save money.
MYTH #5. If you want out early, you're stuck.
You can sale your vehicle at any time. You can trade at any time. plus there are several fee-based Web sites, including LeaseTrader.com and Swapalease, these sites match people who want to get out of a lease early with those who want to assume a short-term lease. At LeaseTrader.com, you pay a fee of $90 to post your vehicle and $250 to complete the transfer of the lease
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