Like The Herald Business Journal on Facebook!
The Herald of Everett, Washington

The top local business stories in your email

Contact Us:

Josh O'Connor
Phone: 425-339-3007

Jody Knoblich
General Sales Manager
Phone: 425-339-3445
Fax: 425-339-3049

Jim Davis
Phone: 425-339-3097

Site address:
1800 41st Street, S-300,
Everett, WA 98203

Mailing address:
P.O. Box 930
Everett, WA 98206

HBJ RSS feeds

Auto leasing not just for luxury cars

Having moved down-market, lease payments can be cheaper than purchasing, but there are pitfalls to watch for.

SHARE: facebook Twitter icon Linkedin icon Google+ icon Email icon |  PRINTER-FRIENDLY  |  COMMENTS
By Jerry Hirsch
Los Angeles Times
Once used mostly to move luxury cars, leasing has reached record levels, helped by easing credit restrictions and a move down-market.
Leases on Jaguars and BMWs remain plentiful, but the most-leased cars in America are now the Honda Civic, Toyota Camry, Honda Accord and Hyundai Sonata, according to Experian Automotive, an arm of the consumer credit-rating company.
Consumers gravitate to leases -- essentially long-term car rentals -- mostly because they offer lower payments. Last year, the median lease payment was $361, about 20 percent lower than the median $434 loan payment on a purchase, according to auto information company
Shoppers have pushed leasing to a record 25.7 percent share of new-vehicle sales in the first quarter of this year, up from just 16.3 percent in 2004, according to Edmunds.
Leasing attracts buyers such as Jerry Festa, a Los Angeles insurance agent who likes the "simplicity and convenience."
"I go down, pick out the car that I want. I drive it for a few years and give it back," said Festa, who leased two hybrids from Santa Monica Ford in the past month. "I don't have to worry about selling the car. I don't ever put a brake pad on a car; I don't ever put a tire on a car."
The drawback? Never getting rid of the car payment. But Festa figures that's a fair price for always having a new car under warranty.
Automakers are doing their best to coax customers into leasing. Honda has pushed especially hard, even with budget cars.
"I can't believe some of the lease deals that I see," said Philip Reed, consumer advice editor at Edmunds. "They are really good."
Leasing of such practical stalwarts as the Civic sedan has taken off with attractive offers, said Brad Mugg, general manager of Norm Reeves Honda in Cerritos, Calif., the nation's highest-volume Honda dealership. The dealer now leases 32 percent of all its cars.
The Civic leases for $169 a month, with no down payment. But a deal such as this is only a cheaper option in the short term, Reed cautioned.
At the end of the contract, usually 36 months, most consumers return the car and pay for a new lease or purchase. You walk away, regardless of how much money you put into monthly payments and any upkeep.
Leases also offer the option to buy the car at the end of the contract, but at a value determined when the lease starts - which may be higher than market value when it ends.
"If you look strictly at economics, you don't want to become a serial leasee because you will always have a car payment," Reed said.
Consumers also need to be circumspect, even when the lease deal appears especially attractive.
An advertised $249 monthly payment, for example, doesn't include tax and registration fees, which immediately raise it to about $275. Higher lease rates will apply to people with lower credit ratings. And many leases carry substantial down payments or other upfront charges, Reed said.
It always pays to get bids from several dealers and to pay attention to the details - length of lease, upfront costs, mileage limits - to make sure the deals are comparable.
Leasing isn't for everyone.
Nelson Holdo, a San Marino, Calif., business executive, describes himself as a "serial" lessee but had to give up the habit after becoming president of Black, Starr & Frost, the Newport Beach, Calif., jewelry company.
"It doesn't make a lot of sense to lease an automobile when you are driving 30,000 miles a year," Holdo said.
Lease contracts typically have big penalties for crossing over the 12,000- to 15,000-mile mark.
So for the first time in more than a decade, Holdo purchased a Mercedes-Benz sedan instead of leasing.
Holdo still leases cars for his family members, who drive far fewer miles. But Holdo is careful to negotiate each aspect of the contract just as carefully as a car purchase.
"I tell that salesman that I am going to give him one opportunity to make me the best deal, and I am going to talk with three other dealers also," Holdo said.
Haggling over a lease gets complicated and includes five main factors:
Capitalized cost: The cost of the car if you were to purchase it outright. The lower the price, the lower the payment.
Money factor: Just a different way of expressing an interest rate. For comparison to a conventional auto loan, convert the money factor to an interest rate by multiplying by 2,400. (The Honda Civic's money factor of 0.00064, for instance, works out to the equivalent of a 1.54 percent rate on a purchase.)
Residual value: What it will cost to purchase the car at the end of the lease. More important, this number is used to calculate the lease payment - the higher the residual value, the lower the payment. The residual is an upfront estimate of resale value at the end of the contract term.
Cash due at signing: This could be a combination of a down payment and other fees.
Mileage limits: Almost all leases limit the mileage and include a charge, maybe 15 or 20 cents, for every additional mile driven.
Reed advises lease consumers to make sure the deal includes gap insurance. If the car is destroyed in an accident, gap insurance covers any difference between what you still owe to the leasing company and what the insurance company will pay for a loss.
Consumers also want to make sure they're getting 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 is less than the residual value assigned up front.
Reed also warns never to lease a car for a period longer than its warranty.
One of the advantages of leases is that you should never have to worry about having to pay for repairs beyond normal maintenance, and depending on the brand, maintenance will even be included during the term of the lease.
©2013 Los Angeles Times
Visit the Los Angeles Times at
Distributed by MCT Information Services
Story tags » Financial & Business ServicesAutomotive



Share your comments: Log in using your HeraldNet account or your Facebook, Twitter or Disqus profile. Comments that violate the rules are subject to removal. Please see our terms of use. Please note that you must verify your email address for your comments to appear.

You are logged in using your HeraldNet ID. Click here to update your profile. | Log out.

Our new comment system is not supported in IE 7. Please upgrade your browser here.

comments powered by Disqus

Market roundup