For best auto lease, look for special deal, use cash

April 01, 1994|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Nobody's perfect. That's why a lot of intelligent motorists make big mistakes in car leasing, a business encompassing one-fourth of cars and trucks leaving the showroom.

Consider the plight of several co-workers of mine.

The first asked me about leasing before he signed up, so he knew what he was getting into. But circumstances changed, and he wound up driving more miles to work than planned. Facing a charge of 15 cents per mile over his annual mileage limit, he moaned daily about much he'd wind up paying.

A second was attracted to a low-cost, long-term lease deal. He went strictly for the deal rather than the car. He quickly hated that uncomfortable vehicle with the tinny radio, but was stuck commuting in it for four years. He didn't want to pay a penalty for breaking a lease, so he begged his wife and son to trade vehicles with him a couple of days a week.

A third co-worker went for the lowest monthly lease payment advertised for his favorite model. Unfortunately, the only reason it was lowest was that it required an enormous initial payment. He paid thousands of dollars before leaving the showroom, defeating an important purpose of leasing, namely not tying up a lot of money. Oh, well, they all still have their health.

"I once asked a dealer if I could get out of my Nissan lease early and he told me that I could, so long as I paid all remaining payments," said Charles Hart, of Chart Software, whose Expert Lease software helps consumers compute the best lease or purchase deal for them. (The basic Expert Lease software package costs $49.95 from Chart Software, 2700 East Bay Drive, Suite 201, Largo, Fla. 34641.)

Motorists lease because of lower up-front costs and smaller monthly payments, enabling them to drive "more car." They're responsible for maintenance, repairs, licensing and insurance. If they return a car in less than top shape, they may have to pay for repairs. For extra miles driven, typically above 12,000 or 15,000 annually, they're charged 8 to 15 cents a mile. Breaking a lease early can cost from hundreds to thousands of dollars.

A leased Camry LE sedan V6 typically requires an initial security deposit of $500 and first month's payment of $342, to continue over 24 months, according to Chart Software. To buy that same car would require a down payment of $2,321 with sales tax of $1,200, plus a monthly payment of $792. Meanwhile, a Ford Taurus GL sedan would require a $325 security deposit and monthly payment of $334 over 24 months. That compares with a $1,739 down payment and sales tax of $1,044 for someone buying, with a $701 monthly payment.

Always find out the actual price of the car. Many leases include an option to buy at lease end for a residual price set when you arranged the lease. You will profit if you then buy the car and can sell it for more than that amount.

"More people are leasing because car prices have simply gone up too fast," said Art Spinella, director of automotive research for CNW Marketing Research in Bandon, Ore.

The average annual mileage limit nationally is 13,800, Spinella noted. Some car companies offer leases with 10,000 mile annual limits, which he terms "ridiculous, because you basically have to leave the car in the garage."

"Large down payments defeat the purpose, since the point is to put down as little as possible rather than give the manufacturer your money," said Rod Couts, executive director of the National Vehicle Leasing Association. "Look for special deals, since some leases are heavily subsidized."

In financial attractiveness, buying with cash is first, followed by buying through a home equity loan with tax deductibility, advised Steven Weinstein, partner in charge of personal financial planning for Arthur Andersen. "Beyond that, go with leasing if you trade cars often or use the car substantially for business," he said.

Car dealers love leases. "Leasing helps a dealer keep a customer because it gives a good idea of when the customer is going to need a new car," explained Larry Oberg, financial services manager for BMW North America, which leases 45 percent of its vehicles.

Read the fine print in a lease, and have penalties spelled out, warned Ted Orme, a spokesman for the National Automobile Dealers Association.

Leasing is here to stay. "It has made its way down to less expensive vehicles, and we expect that in five years 35 percent of vehicles will be leased," said Steven Matalin, regional public affairs manager for Ford Motor Co.

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