Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, November 15, 1993 TAG: 9311130020
SECTION: MONEY PAGE: A-8 EDITION: METRO
SOURCE: By JANE BRYANT QUINN WASHINGTON POST WRITERS GROUP
DATELINE: NEW YORK LENGTH: Medium
In the past, car leases cost less per month than an auto loan but were more expensive over the long run. In many cases, that's no longer true. In order to move cars off the lots, the major automakers now provide price subsidies to those who lease. This can make leases cheaper than loans and sometimes even cheaper than paying cash.
When you lease a car, you don't pay full price. Your payments cover only that portion of its life that you'll actually use.
Here's an actual example, on a $19,945 Mazda 626LX, whose price is negotiated down to $18,800. If you buy it with a five-year loan and a 7 percent down payment, you'll pay $376 a month. If you want to turn it in after just three years - as many drivers do - you have no equity in the car. The money that you still owe on the loan just about equals what the car is worth.
On a three-year lease, however, you buy only the car's first three years of life. That reduces your cost in this example to a modest upfront payment plus $333 a month, a $43 saving.
Today's bargain leases might be cheaper even for those who want to keep their cars for years. That's because of what happens when the lease is up.
At that time, you can typically turn in the car or buy it at a price guaranteed when the lease began. Many turn-in values are set unusually high because that reduces the price you have to pay each month. When the lease is up, however, the car may be worth less than the guaranteed value. You can offer to pay that lower price, and it will probably be accepted. Result: You now own the car for a lower total cost than if you had taken an auto loan and bought it new.
Whether it's cheaper to lease when you could buy for cash depends on what you'd do with the money.
Leasing is generally better if your cash would otherwise earn at least one percentage point less than the loan interest rate built into the lease's monthly payments, says Randall McCathren of Bank Lease Consultants in Nashville.
Some more leasing tips:
Bargain down the price of the car, then ask for lease payments based on that price. You'll overpay if you ask just for the leasing price.
Don't take a lease for a longer period than you expect to drive the car. If you quit the deal early, the car's turn-in value will be less than the sum you owe on the lease, and you'll have to make up the difference.
Tell the dealer how many miles you're likely to drive. At the end of the lease, you'll pay 10 to 15 cents for each mile over 15,000 a year to cover the extra depreciation on higher-mileage cars. You'll pay less, however, if you buy extra miles in advance. Ford rebates any mileage you don't use.
The turn-in value assumes that your car has been well-maintained. You will have to pay extra for cracked glass, lost trim, bald tires, torn seats, deep dents. Look for an itemized list in the lease.
by CNB