Monday, February 8, 2010

Leasing Part One: When Is It Right For You?

Leasing is a great way to achieve affordable payments, when an automaker isn't offering special low-interest rates below 3.9 financing. Before jumping into leasing, you better understand the pros and cons -- if not, it could cost you dearly in the long run.

While leasing was expected to make a strong comeback this decade, as the average new-vehicle interest rates began to climb above 5 percent, the recent recession has caused more consumers to consider conventional financing. In the late nineties, leasing accounted for up to 20 percent of total new-vehicle sales. Last year, leasing hoovered around 14 percent.
Analysts are predicting that leasing may account for 18 percent of all new-vehicle sales this year.
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, 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 Porsches, Audis 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 in 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, the lower the miles, the lower the payment.
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.


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