Leasing has undergone a strong revival. But how do you know if you are ready to lease a new car? What timeline should you follow? Does leasing make sense for you if you have only bought new cars before?
In 2014, one in four new vehicles was leased, according to data from Experian Automotive (via Automotive News). In the first five months of 2015, that number has jumped to 30 percent, according to figures from IHS Automotive.
While there are more people leasing, it’s not a strong market currently if you have subprime credit. You’re going to need to check your credit score before attempting to lease a new car at least a month before. Leasing credit tightened in May, according to Swapalease.com, a car leasing website. It says 69.6 percent of customers were approved for lease transfers. That was down from 78.6 percent in April. Most of the declines were blamed on subprime consumers.
Consumers are demonstrating similar behavior to cell phones by leasing new cars, says Scot Hall, executive vice president of Swapalease.com. “People are looking at leasing a car similar to a two- to three-year cell phone contract,” he says. “A lot of people have come to terms [with not owning their car]. I think people have finally realized they don’t own it until the last payment is made.”
Karl Brauer, senior director of insights and senior editor for Kelley Blue Book, says leasing also makes sense for people who want to stay abreast of the latest technology. While buying a used car “and driving it until its wheels fall off” is the best use of your automotive money, he says, that may not be possible because older cars could become obsolete. “It’s a little disconcerting for me,” he says. “Maybe it’s going to happen quicker than I thought.”
As with new car buying, start three to six months beforehand to see what you can afford in terms of monthly payment. Stephanie Brinley, a senior analyst-Americas for IHS Automotive, says, “If you have a specific budget and the new car doesn’t fit into your budget, leasing could be a good choice.”
Hall says, “One of the big advantages is you are only locked in for a three-year period versus six or even longer,” adding that new car payments are “small mortgages almost.”
At roughly the same time, Brinley adds, determine how much you are going to use the vehicle. Leases have mileage allotments with penalties for excessive use. “Leasing comes down to personal choice and not just economics,” she says.
Hall offers this checklist for potential lessees:
• Determine a monthly payment you’re comfortable with
• Know how many miles you will need annually
• Make sure you get a car that meets your needs in terms of cargo and people
• Realize leases should require less money out of pocket
Leasing is also becoming more popular with older drivers, Hall adds. As you near retirement age, you might want to consider leasing for its largely maintenance-free lifestyle. He says, “Baby boomers are looking more at less commitment. [Older buyers like] to lease to keep payments down and switch out vehicles. [They don’t] want to worry about maintenance. [They] like to turn the key, drive and get another one. It’s a simplification more than anything else.”
There’s also a residual skittishness about making long-term financial commitments since the recession, Hall adds. The leasing market has rebounded since 2009 but not consumer confidence necessarily. “The financial crisis solidified that owning things may not be the way to go,” he says. That’s another point to consider when doing your lease planning: your level of commitment.
Also, factor in that leasing has seen a steady creep downward to lower-priced vehicles. KBB's Brauer says leasing has become hugely popular for volume brands trying to avoid falling behind. He cites Honda and VW as feeling the pressure to stay competitive by adding attractive lease rates.
Research by Wantalease.com, an affiliate of Swapalease.com, shows 16 manufacturer lease deals that had monthly payments of $200 or less in June, six of which were less than $160 a month. The Volkswagen Jetta S was available for $139 per month, the Chevrolet Cruze LT was $147 a month and the Chrysler 200 Limited was $149 a month.
But don’t shop just on monthly prices, Brinley cautions. She says a $199 a month lease, for example, may require a large down payment that makes the lease much more expensive. Also beware deceptive ads, what the Federal Trade Commission calls “deceptive door openers.” The FTC recently sanctioned two Las Vegas dealers for using misleading ads promoting deep discounts available under only highly restrictive circumstances.
Leasing comes down to your lifestyle, as Brinley points out. It’s right for people who want turnover in their vehicles on a regular basis, and don’t mind not owning a car. Hall adds, “Cars are getting more expensive – leasing makes it more affordable.”