|
 Car
Swap
Leasing maintains the
new car driving
experience
A new car
smell is nice but it
will eventually fade.
When purchasing a new
vehicle, that may not be
a car buyer’s biggest
concern but if that
smell could be prolonged,
it wouldn’t hurt.
Popularized in the
1990s, car leasing
gained appeal as a means
of driving a new vehicle,
all the time. Because
monthly payments on a
lease are lower, lease
agreements also allow
people to get into a
fancier car that they
would normally buy. In
these tough economic
times, car leasing over
car buying may be worth
considering.
“What people need to
remember is that with a
lease, you’re paying for
the time you spend in
the car, not the full
value of the vehicle,”
explains Mike Stoller,
media relations manager
for GMAC financial
services, one of the
largest automotive
financing companies in
the country.
The proverbial wisdom
behind car leasing
asserts that because a
vehicle depreciates
dramatically once it’s
driven off the lot, it
doesn’t present a wise
investment. Leasing a
vehicle allows a buyer
to drive a new car with
lower monthly payments.
At the end of a lease
period, the driver can
opt to purchase the
vehicle, or trade it in
for yet another new one.
For Latinas who like
driving a new car,
consider a car payment a
regular expense, and
don’t need to own a
vehicle outright,
leasing may be the
better choice.
Here are some
additional points to
consider.
What is the residual
value of the car you’re
leasing?
True, most cars
depreciate once they’re
bought, but not all of
them. A better residual
value makes for a better
lease agreement.
European luxury models,
for example, hold much
of their value, as do
some Japanese models.
Generally, car dealers
with higher-end
nameplates may be more
open to leasing because
they know that the car
will retain some of its
value at the end of the
lease making, it is more
saleable as a used
vehicle. For an estimate
of a car’s residual
value, check with Kelly
Blue Book,
www.kbb.com.
Do you travel
extensively in your
vehicle?
Because dealerships
still own the vehicle,
and will continue to own
it once the lease
agreement is ended, they
want to ensure that they
can resell the vehicle.
Because low mileage
affects the resale value,
dealerships usually
include a mileage cap as
part of the lease. The
average limit is 12,000
miles annually and if
the limit’s exceeded,
penalty fees usually
accrue. Considering the
tough time automakers
are currently facing, a
mileage cap may be
negotiable but if not,
leasing may not be the
right choice for heavy
commuters.
If
you feel a lease is the
right choice, the next
hurdle will be the lease
itself. Jargon and
vernacular will be in
the dealership’s favor,
unless you remember the
following points.
Is a lease price
negotiable?
Yes, price is always
negotiable. Keep in mind
it also depends on the
dealership and the
vehicle’s demand versus
supply. The term for a
lease price for a
vehicle is the
“capitalized cost” or
cap cost. It should be
significantly less than
the manufacturers
suggested retail price (MSRP)
of a new car, but like
the MSRP, it’s
negotiable. The lower
the cap cost, the lower
your lease payment will
be but it’s important to
research a certain model
before leasing. Cap
costs can also be
reduced with dealer
incentives, rebates,
trade-in credits or a
cash down payment. Try
to avoid “negative
equity” or unpaid loan
balance penalties in
your agreement when the
vehicle is returned.
How is the interest
rate calculated?
This can be one of the
most confusing aspects
of the lease because
it’s not referred to as
interest but “money
factor” or “lease
factor.” It’s also
specified as a number,
less than zero but
dealers may quote it as
a percentage to add to
the confusion, for
example, a money factor
of .0039 would be
referred to as 3.9. To
convert the money factor
to an annual interest
rate, multiply the
factor by 2400. They
should be comparable to
or lower than new car
loan rates.
How long should the
lease term be?
Longer leases have lower
payments but you will
also be paying longer
for a car you may never
own. It’s also important
to match the lease term
with warranty coverage
to avoid out of pocket
expenses for repairs. A
powertrain warranty
refers to the engine,
transmission, and
driveshaft whereas a
bumper-to-bumper
warranty will cover
almost every aspect of
the vehicle except
regular maintenance
items like oil filters,
batteries, and tires.
For more information on
leasing, check out
www.leaseguide.com. Many
online sites, like
Edmunds.com also offer
calculators to get a
better idea of what your
payment should be before
you approach a
dealership.
As
investments, cars are
dreadful, but as a
necessity, new cars make
driving a little sweeter.
By Valerie Menard
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