(iStock)
(Thinkstock)
After driving into a ditch during the recession, auto-leasing deals are back in a big way.
How about a well-equipped Honda Accord for $250 a month with no down payment or any other drive-off fees? Or, better yet, $199 a month for a Chevrolet Malibu?
So what's the catch? There isn't any if you know what you're getting into. To get the best deal, you need to learn the art of the lease transaction. Here are some steps to take and things to consider.
More to consider
- Other factors that affect the contract include manufacturer incentives; the size of the down payment; the length of the lease; and the number of miles allowed.
- Be sure the contract includes gap insurance, which covers any difference in what an insurance company will pay out if a car is destroyed in an accident and the value the lease company has assigned to the vehicle.
- Get a closed-end lease. That means that if you return the car with normal wear and tear you can walk away with no further expenses, even if the vehicle's resale value is below what was estimated at signing.
- Never lease a car for a period longer than its warranty. One of the advantages of leases is that you never have to worry about having to pay for repairs beyond normal maintenance.
Annual mileage
Consider how much you drive annually. Leases aren't for people who pile up the miles because they typically limit the use of a car to an average of 10,000 to 12,000 miles a year. You will pay penalties if you turn in the car with more miles than allowed.
When you compare bids, make sure that the monthly payment, length of the lease, drive-off cost and number of miles allowed over the contract term are the same, says Philip Reed, senior consumer advice editor for Edmunds.com.
A change in any one of those variables means you are no longer comparing apples to apples, and that could cost you money, Reed says.
Residual value
Along with the interest rate, an important number to consider is the residual value of the vehicle -- an estimate of what the car will be worth at the end of the lease. New vehicles with high residual, or resale, values typically have lower lease payments than other autos in a similar price range.
Manufacturers will disclose the residual value in the lease offer, but it is usually stated as the dollar amount you can pay to purchase the car at the end of the contract. You have to convert it to a percentage of the sticker price to be able to compare it to other offers. You want the residual to be as high as possible, and the capitalized cost (the negotiated price of the car if you were to purchase it outright) and interest rate to be as low as possible.
Learn the lingo
- Before you shop for an auto lease, familiarize yourself with these terms.
If your annual mileage is low and you're an auto flipper -- someone who yearns for the next hot vehicle around the time the new-car smell fades -- you're a good candidate for a lease.
Beverly Rumfola of Whittier, Calif., has leased her last three autos. "I like having a new car and I like having it always under warranty," she says. "Financially, it is better to buy a car and keep it for 10 years, but this works for us."
Comparing bids
Once you have a target vehicle, go to the manufacturer's website and see if there are any special deals on the vehicle.
Use the advertised lease deal offered by the manufacturer to compare multiple dealers and see who might go lower than the offer.
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