12.18.07
Should I Buy or Lease a Car in 2008?
Sure, approximately 80 percent of auto consumers either pay cash or finance their purchase with a loan, but you’re considering joining the other one-fifth of intrepid consumers willing to forgo ownership for a new set of wheels and the short-term benefits that leasing provides.
Maybe you’re self-employed and can write off your leasing payment as a business expense. Or maybe you’re trying to get into a luxury model for less upfront cash. Or maybe you demand the latest safety and technology innovations and don’t want to be saddled with a 60-month loan term. Or maybe you just like driving a new car every couple years.
“The question you have to ask yourself is, ‘Is there a special reason I need a new car every few years?’” says Art Spinella, president of CNW Marketing Research in Bandon, Ore. “For most consumers, the answer is no.”
But maybe you’re in the minority. Maybe your answer is yes.
It’s true that leasing has diminished in popularity as automakers have offered low-interest financing and cash-back offers to buyers. Leasing rates dropped from 29.2 percent of retail car sales in January 2001 to 23.2 percent in February 2006.
But as automakers try to stem depreciation caused by big cash rebates and interest rates slowly rise, leasing numbers are beginning to increase with them.
“Affordability is clearly a key to the leasing rate,” says Paul Taylor, chief economist for the National Automobile Dealers Association. When interest rates are low, lease payments aren’t that much lower than financing. But “when rates start going up, leasing will become more popular again,” he says.
Lower payments and higher interest rates aren’t the only reasons to lease — leasing also offers purchasing flexibility, according to Michael Kranitz, creator of LeaseWizard.com software and author of “Look Before You Lease: Secrets to Smart Vehicle Leasing.” Leasing allows consumers to defer the purchasing decision while they’re using the car. “In the meantime, I have a three-year test drive,” Kranitz says.
Lessees also don’t have to worry about owning a depreciating asset or dealing with hefty repair bills. At the end of the lease term — assuming they’ve kept the car in good condition and stayed within prescribed mileage limits — they can simply turn in the car and walk away.
Of course, those benefits have a price.
“Leasing is convenient, and . . . you’re going to pay for that convenience,” says George Pipas, manager of sales analysis for Ford Motor Co., which was one of the main proponents of leasing in the 1980s and ’90s. “In the first two years, it might be cheaper,” he adds. “But then guess what? You’re going to have to do something.” Namely, buy or lease another car.
Maybe that’s the reason approximately 80 percent of consumers buy rather than lease. They also may be trying to build equity or simply like the comfort of driving the same car for a number of years. Or they could be trying to avoid leasing’s cycle of endless car payments, mileage limits and annoying wear-and-tear considerations.
But that’s not you. Not yet, anyway. You don’t want to worry about maintenance bills when your payments are up. You drive your car for business. You have good credit. Or you simply love having the latest set of wheels.
It’s possible, then, that leasing is for you. And that’s fine — just make sure you understand the process.