| There are several factors to consider before deciding | | | | the manufacturers and their dealerships more money |
| whether to buy or lease a vehicle. Driving habits, buying | | | | because of higher owner loyalty, improved likelihood of |
| habits, manufacturer incentives, and vehicle rates and | | | | proper vehicle servicing, and a better chance of selling |
| depreciation are the primary factors, but there are | | | | more expensive, higher profit vehicles. |
| others as well. | | | | All of this computes into a nice ebb and flow of |
| -- Driving Habits -- | | | | incentives offered. There will normally be incentives for |
| This is the easiest qualifier. Every car finance | | | | both financing and leasing a vehicle, but whichever |
| company, whether it is the manufacturer's division such | | | | way the finance companies want consumers to lean |
| as Ford Motor Credit, a specialty lender like Wells | | | | for that particular time period is the option that will have |
| Fargo, or a personal bank or credit, has multiple lease | | | | the better incentive. Look at both options and see |
| and purchase programs available. | | | | which feels better. |
| Determine your mileage habits, taking into consideration | | | | -- Vehicle Rates and Residuals -- |
| travel plans, potential job or housing changes, and | | | | Some vehicles are good for leasing. Others are not. |
| anything else that may make you drive more or less | | | | The two most important factors (and often the |
| than you normally do. Once you have an idea of how | | | | hardest to understand) are rates and residuals. |
| many miles you will likely be driving over the length of | | | | The lower the rate, the less an owner will end up |
| the lease, find out if there are plans to match. | | | | paying. Seems simple, but when comparing different |
| If there is a good chance that you will go over in miles, | | | | makes and models, a lower rate might also signify a |
| leasing is not the best option. If you will not be going | | | | lower residual. If this is the case, any savings a |
| over, continue to the next factor. Driving 10k miles per | | | | consumer gets from the rate are wiped out by the |
| year does not automatically make leasing the best | | | | lower residual. |
| option. | | | | The residual value in a lease equation is the amount |
| -- Buying Habits -- | | | | that the finance company believes the vehicle will be |
| Over 65% of Americans between 25-45 years of | | | | worth at the end of the lease if it is within the mile limit, |
| age change vehicles every 2-4 years. The finance | | | | mechanically cared for and without damages. The |
| companies know this, which is why most offer lease | | | | higher the residual, the lower the amount financed, and |
| terms that fall into this range. Some go longer. | | | | thus, the lower the payments. |
| Leasing is freedom and prison at the same time. While | | | | For example, if a $30,000 vehicle has a 50% residual |
| it allows a consumer the opportunity to get out of one | | | | for three years, the buyer is basically getting a $15,000 |
| low mile vehicle and into a no mile vehicle, it also locks | | | | 36 month loan. If the residual for that vehicle was 40%, |
| a person into the terms. Once you're in, it's hard and/or | | | | the buyer would be paying for 60% during that time, so |
| expensive to get out. Trading is difficult until a few | | | | they would be getting an $18,000/36 month loan. |
| months before the term ends. | | | | It is sometimes difficult to follow the math, but the |
| If you are sure you want to change vehicles every 2-3 | | | | concept is simple. The higher the residual, the less a |
| years (and you have leasing "driving habits") then | | | | buyer will be paying during the lease. Consumers who |
| leasing is potentially the better option. If you keep your | | | | are true "leasers" who will be switching vehicles at the |
| cars for four years or longer, that doesn't necessarily | | | | end of the term should look for higher residuals. People |
| mean you shouldn't lease. | | | | who are leasing to get the low payments and plan on |
| When GM started their SmartBuy program, it took a | | | | getting a loan for the balance at the end of the lease |
| lot of heat from consumer advocacy groups because | | | | shouldn't be too concerned about residuals because |
| it was a lease that seemed like a purchase. Terms | | | | whether they're paying 60% now, 40% later or 50 |
| such as "balloon payment" and "due at Lease End" | | | | 50% now/later, they are still paying for 100% of the |
| became synonymous with "SCAM". | | | | car in the long run. |
| In reality, this is a method of "buying" more vehicle than | | | | Vehicles for 2007 who had the best residuals in their |
| a person's payment range would normally dictate. As | | | | class include: |
| an example, a recent promotion by Lincoln offered | | | | Volkswagen Rabbit, Toyota Camry, Toyota Avalon, |
| their luxury MKZ for $0 down, $0 due at signing, $0 | | | | Pontiac Solstice, Lexus IS 250/350, BMW 6 Series, |
| first payment, and $399 a month payments on a 39 | | | | Honda Odyssey, Land Rover Range Rover Sport, |
| month lease. | | | | Jeep Wrangler, Toyota 4Runner, Mercedes GL Class, |
| A standard loan of 72 months at a low 2.9% on a | | | | Toyota Tacoma, GMC Sierra/Chevrolet Silverado |
| $35,000 vehicle would be over $500 per month. If a | | | | Imports generally have higher residuals than their |
| consumer wanted to purchase this MKZ at Tulsa | | | | domestic counterparts. Automotive Lease Guide lists |
| Lincoln and had great credit but didn't like the high | | | | the following as the best manufacturers for leasing: |
| payments, they could lease it for 39 months. After the | | | | 1 Honda |
| lease, they could finance the balance and still be under | | | | 2 Toyota |
| $400 per month. | | | | 3 Subaru |
| This is NOT the recommended way, but for those | | | | 4 Volkswagen |
| with "steak taste on a burger budget" it is an option. | | | | -- Final Thoughts -- |
| -- Manufacturer Incentives -- | | | | One final plea - buy used. There are great sites where |
| The vast majority of automotive lenders like to keep a | | | | consumers can buy a car online, such as Baltimore |
| mix of leases and purchases out on the road. Too | | | | Used Cars, where a consumer can shop thousands of |
| many leases cause the manufacturer to lose more | | | | cars that match their criteria. Still, if a customer wants |
| money when the vehicles are turned in because | | | | new, they should get new. |
| residual values are normally higher than actual cash | | | | Leasing and buying each have distinct advantages |
| values. In other words, what the manufacturer thought | | | | over the other. The best thing that a consumer can do |
| a vehicle should be worth in 3 years (residual value) is | | | | to decide is to look at the entire circumstance, |
| normally higher than what they actually bring at the | | | | research possibilities, apply the previous ideas to the |
| program car auctions (actual cash value). | | | | equation, and then pick what is best for their situation. |
| Still, they want a certain number of leased cars on the | | | | Knowledge is a buyer's (or leaser's) best friend. |
| road for several reasons. In the long run, leases bring | | | | I hope it helps. |