Should You Lease A Car Or Not?

It's 2009 and your car lease is almost up.  It's time to turn in your car and face the music of paying for extra mileage and putting out some dough to get your car in tip-top shape.  You're asking yourself, "Should I lease again?  Are my leasing days over?"

A lease, according to Westways Magazine, was invented to allow consumers to make low payments on a brand new car they otherwise couldn't afford.  However, the lease concept backfired on the auto industry.  In 2008 the market for SUVs, pickups and other gas-guzzlers fizzled. Now dealers are flooded with vehicles with expired leases, but not worth as much as automakers expected.

Some automakers like Chrysler are scrapping their lease program.  GM is also following suit.  Because the resale value of their returned cars are so low, the auto manufacturers are not able to financially support leases at below-market rates.  Banks such as Wells Fargo have also dropped the car-leasing end of their business.

What's a consumer supposed to do to buy a car and still get a low monthly payment?

•Consider the downside of car leasing.  You are making low car payments because you're not actually purchasing the car you're leasing.  You have no equity in that 2008 VW you'll be driving and paying for over the next four years.  You'll hand the car to the dealership in 2012 and only have memories to show for your money.

Leasing is going to ultimately be more expensive than buying a car, according to Intellichoice.com. Since a car suffers its greatest depreciation during the first two years, leasing will cost you more. Your lease payment is designed to cover the depreciation loss taken by the manufacturer, plus a finance charge. 

•Consider new alternatives to car leasing.  Some automakers are putting sales-incentive money toward low-interest loans.  However, the consumer who wants a low monthly payment, may end up with a long-term loan to get an affordable payment.  Another drawback is that in four to five years, you may owe more for your car than the Kelley Blue Book value of the vehicle. Even if you could sell the car in five years for $9000, you may owe $12,000 on the loan. 

With a long-term loan, a borrower will pay a lot more interest.  Another option some consumers choose is to trade in the car before the payoff time, rolling the deficit from the old loan into the new loan.  In a real sense, you'll be paying for two cars at once. 

•Consider the upside of car leasing.  You will save on sales taxes because you pay tax on your payments and not on the full price of the vehicle.  If you stay at your yearly mileage of 12,000 to 15,000 miles and take good care of your vehicle, you can trade in your car and go for another one.  Regardless of various car manufacturers dropping their leasing programs, you'll always be able to find a decent lease deal. 

If you lease again, go for the fuel-efficient vehicles with a high resale value. Try not to put down too much money up front. You're only giving the car company a large amount of cash to bring down your monthly payment.  You're better off keeping that money in a CD and earning interest.

•Consider purchasing a less expensive car.  Can you afford the payments on a car loan of four years or less?  If not, look for a cheaper car, keep it in good shape and drive it into the ground.  In the long run, you'll be saving money, be in less debt and perhaps be in a better place to make a wiser financial decision on your next vehicle purchase.

John

Email John:  johnsblog@teshmedia.com

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