FEATURE ARTICLE
AUTO LEASING: THE GOOD, THE BAD, AND THE UGLY !!Purely from a money-saving standpoint, leasing is about the worst possible way to get a car. Buying is almost always cheaper in the long run, especially if you can pay cash. Financing a car with an auto loan is often cheaper, too. Even so, fully a third of new cars today leave the lots on a lease. So are all those people out of their minds? Not necessarily. Leasing isn't always a crazy idea. For example, if your job or your ego requires a shiny new car every couple of years, leasing may make sense. If you don't have the cash for an auto loan down payment, it may be your only option. Monthly payments can be cheaper with a lease, as well. But leasing's advantages come at a cost. When you lease, you're basically renting a car. At the end of the lease, you'll own nothing, so you'll either have to lease another car or buy one. What's more, because cars depreciate more quickly in their early years, you'll have paid a large chunk of the car's price for just a small portion of its potential time on the road. And finally, leasing transactions are notoriously complex -- offering any unscrupulous car dealers or leasing companies you may encounter ample opportunities to bamboozle you. Indeed, the line between leasing and fleecing can be a thin one. On October 1 of this year, it may get a bit thicker, though. That's when some new Federal Reserve Board rules are scheduled to take effect. Those rules call for disclosures that should make leases easier to understand and to compare. So if you can wait until fall to lease, you may get a fairer shake. In the meantime, here are nine ways to drive a better bargain if you decide to lease. 1. Know that almost everything is negotiable. Just as you wouldn't (I hope) blithely write out a check for the full sticker price on a car you were buying, you shouldn't pay full price for a leased car, either. W. James Bragg, in his book In the Driver's Seat, suggests you not even mention that you intend to lease until you've negotiated a reasonable purchase price. To get an idea of how much room you have to haggle, consult Money's March issue, the April issue of Consumer Reports, or any of the services that will tell you what the car you want cost the dealer. Edmund's Automobile Buyer's Guides, for example, offers prices, specs, and reviews of more than 500 new-car models at its Web site. Kelley Blue Book Online offers similar services, plus a nifty calculator that lets you figure the trade-in value of your old car. Also negotiable: the length of the lease, the number of miles it allows you (see tip #4), and the price of gap insurance (tip #7). 2. Watch the ads. The best leasing deals tend to involve manufacturer subsidies, which are often advertised -- albeit subtly. Consult the fine print for two prices: the manufacturer's suggested retail price (MSRP) and the "capitalized cost" for that vehicle; if the capitalized cost is lower, the difference probably reflects a subsidy. Manufacturers offer these deals to move excess inventory, so if the car of your dreams is selling briskly, you may wait in vain for a subsidy. If it happens, though, that's probably time to pounce. 3. Really watch the ads. Leasing ads have a reputation for honesty roughly on a par with the Presidential administration of Warren G. Harding. And with good reason. The giant type that proclaims low monthly payments is almost invariably accompanied by tiny type explaining why you'll really pay a whole lot more. Among the facts to ferret out of the footnotes: any down payment, the security deposit, bank or acquisition fees, mileage limits, and termination charges. The new rules that go into effect this October are supposed to clean up the ads, too. We'll see... 4. Measure your miles. Most leases allow you to put about 12,000 miles on the odometer each year. Exceed the limit and you'll have to pay extra -- typically 15 to 20 cents per mile. So figure out how much you'll be driving and try to find a lease with enough miles (but not so many that you pay for far more than you use). 5. Reflect on the residual. When you buy a car, you have one price to worry about. When you lease, you have two: the initial price (or "capitalized cost," in leasing lingo), and the "residual value" when the lease comes to an end. Because the cost of the lease is determined, in part, by the difference between those two prices, you'll want to consider both in your negotiations. All else being equal, the lower the residual value the dealer quotes you, the higher your payments will be. That's all the more reason to shop several dealers and leasing firms for the make and model you want. One more tip: Make sure your lease is closed-end, rather than open-end. A closed-end lease allows you to walk away at the end of the term; an open-end one holds you financially responsible if the car is worth less than its predicted residual value. 6. Master the money factor. Also known as the lease rate, lease factor, and by other aliases, this is the interest rate the leasing company will be charging you. It's generally expressed as a weird-looking decimal, such as .00389. To get something that more resembles an interest rate, multiply by 24 or 2400. Money factors are worth comparing, but since the dealer can play games with both the car's initial price and its residual value, a low money factor alone doesn't mean you're getting a bargain. Some salespeople may refuse to share the money factor with you -- a good signal to X them off your list. 7. Don't be a sap about gap. Gap insurance covers any difference between what your auto insurer would pay if your car were totaled or stolen and the amount you would still owe on the lease. Sometimes it's included in your monthly payment; other times you have to buy it separately. Getting gap insurance is a good idea, but overpaying for it is not. Prices for gap can be all over the map, so be sure to include it in your comparison shopping and negotiations. Sometimes you can get the dealer to pick up the tab. 8. Beware "wear and tear" Leasing contracts say you'll be responsible for excess wear and tear when you turn in your car. This, of course, is another opportunity for villainous leasing companies to help themselves to your bank account. How to protect yourself? First off, try to get "excess" defined in the contract. Some experts also say you're safer on this score with a manufacturer-financed lease than one through an independent leasing company. The car maker may be more interested in your repeat business than in hassling you over imaginary dents and dings. 9. Think twice about terminating early. If you need to get out of a lease ahead of schedule, you'll pay a punishing penalty -- sometimes as high as the total of all your remaining payments. So don't be talked into a lease that's longer than you can live with. Note also that with some leases you'll be hit with a "disposition fee" -- even if you return your car right on time. Source: Money Online - Written by Greg Daugherty |