Saturday, June 7, 2014

Five Questions To Ask Before Leasing A Vehicle

Leasing is a great way to achieve affordable payments, when an automaker isn't offering special low-interest rates. Before jumping into leasing, you better understand the pros and cons -- if not, it could cost you dearly in the long run. Leasing allows consumers to extend beyond what they can necessarily afford. In many instances, consumers should consider stepping down into a vehicle they can afford to finance or possibly pay-off with cash. 


Leasing has made a strong comeback, as the average new-vehicle price continues to climb. In the late nineties, leasing accounted for up to 20 percent of total new-vehicle sales. In 2009, during the last recession, leasing hoovered around 14 percent. And as of the first quarter of this year, leasing accounts for 30 percent of new-vehicle sales.


So, if you're think about leasing a vehicle, ask yourself the following questions:

Are You a Lease Candidate?

Before you move forward with leasing, ask yourself the following questions:



1. Do you prefer having continuous car payments? With leasing, it is like living in an apartment. You're always making payments without ever having ownership. Technically,when financing a vehicle, you never really own any vehicle until the 60th payment, the 72nd payment or whatever finance terms you agree too.


2. Do you reside in a location that allows you to drive less than 15,000 miles annually? While visiting a store in the Long Island area of New York a few years ago, where PorschesAudis and Volkswagens were housed under one roof, the sales manager reported that over 90 percent of his customers leased their vehicles. This is somewhat unusual for the lease penetration to be this high unless most of the lessees have a relatively high credit score and an alternate means of transportation to and from New York City where traffic is a nightmare.

3. Do you have a high credit score? Most leases require that you have a score near or above 700. Obviously, exceptions can be made.

4. Do you drive less than 15,000 miles a year? Most advertised lease payments are structured around 10,000 to 12,000 miles a year. However, if you plan on driving upwards of 15,000 miles, you should buy the appropriate mileage up front. Typically, lower miles equates to lower payments.

5. Are you considering an electric or plug-in vehicle? With those vehicles being somewhat pricey and the technology changing so fast, it makes sense to lease. The expense of replacing the battery and the limited driving ranges doesn't make sense for consumers to finance those vehicles. To read our analysis of the pros and cons of electric and plug-in vehicles, click here.

Conversely, if you plan on driving over 15,000 to 20,000 miles per year, you should consider shying away from leasing -- unless you can write the lease off as a business expense and/or if you plan on buying the vehicle at the end of the lease provided you qualify for financing (or paying the balance (residual value) off in cash.

If you answered yes to the aforementioned questions, you're a lease candidate. To learn about the pitfalls of leasing and negotiating a lease, click here.

And to check out our radio interview with a national leasing expert on how to calculate a lease and the pros and cons of leasing, click here.

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