| In the past, we've looked at the "buy versus lease" | | | | mileage caps, maintenance items, turn-in fees, and |
| equation from the perspective of a relatively healthy | | | | other factors that can be negotiated. |
| economy. In a robust economic environment, there are | | | | Does Today's Turbulent Economy Change Things? |
| more benefits to purchasing a vehicle than leasing one. | | | | The question is whether it makes more sense to |
| The only exception is the inability to drive a new car, | | | | choose a leasing arrangement over buying a car |
| truck, or SUV every two or three years. Now that the | | | | outright given the current recession. Indeed, the industry |
| economy has become thoroughly ravaged, it's worth | | | | has gone through significant changes over the past |
| taking another look at the comparison. | | | | couple of years. Credit markets have tightened, which |
| In this article, we'll approach the issue by first revisiting | | | | has made it far more difficult for consumers to qualify |
| how the leasing process works. I'll describe the key | | | | for auto loans. Automakers and dealerships have |
| factors that influence whether this type of deal is more | | | | responded by expanding their lease portfolios. |
| appropriate during a sluggish economy. I'll also explain a | | | | For a certain type of prospective car buyer, leasing |
| few of the dynamics that have changed in the industry | | | | arrangements are more attractive than ever. Not only |
| over the past year. | | | | are dealers more willing to offer better terms, but |
| How The Process Works | | | | buyers who may want to get rid of their vehicles after |
| The negotiations for a lease are similar to those when | | | | a few years can simply turn them back into the |
| purchasing a vehicle. After choosing the model you'd | | | | dealership. They won't be forced to unload their |
| like to drive, you and the dealership need to agree on | | | | vehicles on a soft market. |
| the price. This price is referred to as the capitalized | | | | The Frugal Driver Is Better Off Buying |
| cost. Much like your monthly payments on the | | | | Even given the advantageous leasing terms offered |
| purchase of a car are based upon a financing interest | | | | by dealerships, most frugal drivers will be better off |
| rate, your monthly lease payments are based upon a | | | | buying their vehicles outright. Once depreciation has |
| money factor. Incidentally, dealerships often try to | | | | been removed, the cost of occasional repairs and the |
| obfuscate the money factor in the same way they | | | | replacement of worn parts is far lower than a |
| obfuscate the interest rate. That should imply the | | | | perpetual string of monthly payments. |
| importance of negotiating this factor upfront. | | | | The lease industry has become more attractive for |
| In addition to the purchase price, you and the dealer will | | | | the buyer that places a high value on driving a new car |
| agree upon a residual value. This is the value of the | | | | every few years. For most drivers, buying and |
| leased vehicle at the time you return it to the | | | | maintaining the same car for its driving life is far less |
| dealership. The lease agreement will detail annual | | | | expensive. |